Page 34 - DIY Investor Magazine | Issue 34

QD VIEW – FISHING FOR AN
ASIAN FUND? CHINA OR VIETNAM?
This week’s interview with Craig Martin of Vietnam Holding highlighted a number of reasons why investors might want to consider an investment in the country – by James Carthew
Vietnam is a frontier market, not yet classified by the big index compilers as an emerging market, but well on the way. Its transformation over the past few years has been spectacular. A significant factor in its success has been its emergence as an alternative manufacturing hub to China.
VIETNAM IS OUTPERFORMING
Over the past year, there has been a marked divergence in the fortunes of Chinese and Vietnamese focused funds. Over the past 12 months, the four Chinese investment companies have seen share price falls of between 19.1% (abrdn China) and 35.5% (JPMorgan China Growth and Income).
By contrast, the three Vietnamese investment companies have made gains of between 6.8% (Vietnam Enterprise) and 26.6% (Vietnam Holding).
Even after these moves, the market is not expensive. Craig quoted a forecast price/earnings ratio for the Vietnam All Share Index of 10.5x at end May 2022. The equivalent figure for MSCI China is 10.7x.
What seems strange to us is that the Chinese funds tend to trade close to asset value while the Vietnamese funds are all on double-digit discounts. That may rectify itself in time.
WHY HAVE MANUFACTURERS SHIFTED PRODUCTION OUTSIDE CHINA?
An early driver was the trade tensions between China and the US. These attract fewer headlines than they did in the Trump era but haven’t yet gone away.
Recently, it has been China’s zero-COVID policy which has interrupted supply chains and closed factories, unnerving customers. Vietnam was following a similar path, but recognised the damage that this was doing to its economy, got its population vaccinated with western vaccines and learned to live with the virus.
It is also now accepting tourists, which should reinvigorate an important part of its economy.
An underlying factor has been rising Chinese wages.
The average Vietnamese worker is paid a lot less than the average Chinese worker ($6.50 per hour in China to $2.99 per hour in Vietnam in 2020, according to Statista).
It is the potential for catch up that drives the positive outlook for domestic consumption in Vietnam.
Vietnam has opened up to global trade, joined a number
of free-trading areas and is seeing high levels of foreign investment. Craig talked about new investments by Apple and Foxconn, for example. It is also less exposed to the problem of rising oil prices than many of its peers.
All of this has boosted Vietnam’s current account, the currency has been relatively strong therefore.
THE ACTIONS OF THE CHINESE GOVERNMENT ARE PUTTING OFF SOME INVESTORS
For investors, while managers of Chinese funds say that their stocks are looking cheap, there is an uneasiness around the recent behaviour of the government, and China’s deteriorating relations with its neighbours.
President Xi Jingping is seeking to consolidate his grip on power and that seems to be translating into a crackdown on internal dissent, including the ongoing subjugation of Xinjiang.
Combine this with the ongoing assimilation of Hong Kong, threats against Taiwan, the nine-dash-line territorial land grab in the South China Sea and perhaps it is unsurprising that some investors tell us they no longer feel comfortable investing in the country.
DIY Investor Magazine · July 2022 34