Vietnam: a high-growth market going cheap

It has been 50 years since Vietnam was reunited after a 25-year war that devastated the country. For the next 15 years, the communist regime made a bad situation worse by encouraging their opponents – the skilled, the educated and the ethnically Chinese – to flee, mostly in small boats. Between 200,000 and 400,000 refugees are thought to have died at sea.

However, in the late 1980s, the government performed a sharp U-turn and turned Vietnam into a very capitalist country under autocratic rule. Since then, GDP per capita has risen from $270 a year to $4,300 in an economy that has grown from $6.3 billion to $430 billion, notes Tod Davis of brokers Deutsche Numis.

Wider signs of social progress are equally impressive: the population has increased from 44 million to 100 million, male life expectancy at birth has risen from 61 to 75, literacy has risen from 57% to 96%, and the poverty rate has fallen from 78% to around 3%. Davis puts this transformation down to “the resilience, grit and determination of the nation – making it, for me, the number-one destination in Asia for investment over at least the next ten years”.

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A prosperous future for Vietnam

With the economy growing at 6% per annum, “Vietnam is likely to become a high income nation similar to Taiwan and South Korea, with a GDP per capita of $12,500 within 20 years”, says Brook Taylor, chief executive of VinaCapital, the manager of the £700m Vietnam Opportunity Fund (LSE: VOF). He regards Vietnam as culturally more similar to these countries than the very different countries of Southeast Asia.

Sceptics will worry about the prospect for capitalist growth in a communist country, but “prosperity for everybody provides the legitimacy for one party government, as in Singapore”. There is “some correlation between democracy and prosperity”, but “which comes first?” Taylor asks.

“South Korea and Taiwan became democracies as the result of development.”

Vietnam has key advantages; a diaspora of around five million Vietnamese around the world, a high participation rate for women in the workforce, agricultural and mineral wealth and “a very pragmatic mindset”. The country’s 2,000-km coastline is a significant asset. “The wealth of China and the US is concentrated on the coast.” Surveys also assess it as “the third least-corrupt country in Asia, after Singapore and Malaysia”.

The threat of tariffs is the current worry (America’s trade deficit with Vietnam is its third-largest), but this may be exaggerated. VinaCapital expects the US to settle for a 20% tariff in the end, probably with a high-tech exemption. This would reduce GDP growth from 7% to about 6% for 2025. Yet this may still translate into corporate earnings growth of 20%, for a stock market valued at just 10.4 times expected earnings.

Private markets

VOF is managed by Khanh Vu, who left Vietnam by boat in 1978, but returned in 2010. His concentrated portfolio is invested in 25 stocks, focused on sectors that benefit from the evolving economy. Real estate accounts for 22% of the portfolio: urbanisation is still just 41%. Financials are 19%: only 43% of the population have bank accounts. Consumer and health care are 20%: domestic consumption is 65% of GDP and the middle class is growing. Industrials and technology account for 11%: internet penetration is 79%. Ten of the holdings are currently private, but 80% of the listed stocks also began as private equity, in privatisations or as private placements.

While Vietnam has 1,700 listed companies, screening for size, liquidity, low debt and growth reduces VOF’s scope greatly, to 25-30. Of the 15,000 private companies, Vu regards 100 as investable. Investments are typically held for three to five years, “but over ten years if justified”. However, Vu actively trims investments that perform strongly, or even sells out.

Vinamilk, one of the largest constituents of the Vietnam index, was held for 17 years until it exited between 2017 and 2021. Since then, the shares have performed poorly.

These disposals have enabled new investments – including reinvestment into a bakery company that was VinaCapital’s first investment – but also returns of capital. The trust has handed $764 million back to investors since 2011 – equivalent to its net assets then – including $92 million of share buy-backs since mid 2024. It has paid dividends since 2017 and the shares now yield 2.8%.

Focused exposure

Over the last three years, the market has been poor. At the end of April, VOF’s net asset value (NAV) was down by 10% in US dollar terms. Dragon Capital’s £1.2 billion Vietnam Enterprise Investments (LSE: VEIL) had lost 25% and Dynam Capital’s £80 million Vietnam Holding (LSE: VNH) had fallen by 10%.

However, the numbers are better over five years: the NAV return for VOF has been 68%, with VEIL on 58% and VNH returning 109%. There are points of differentiation (such as VOF’s greater focus on private markets and VNH’s tilt to smaller stocks), but the investment stories for all three are compelling. At present, VNH trades at a 5% discount to NAV, while the other two are on around 20%.

Vietnam is classified as a frontier market rather than an emerging one, so any exposure in an emerging-market fund is off-benchmark and typically small, making these specialist funds look more compelling. It is normally wise to be sceptical about single-country funds: investors can easily get sucked in at the high only to see the country fall out of favour. Being cautious about investing based on a country’s economic record is also wise (China has proved a miserable place to invest over the last 15 years). However, given the sharp setback in Vietnam’s market this year – due to the threat of tariffs – despite the excellent outlook and an investor-friendly approach, it may be the exception that proves the rule.

For investors wanting to hear more about Vietnam, Dragon Capital is holding a Vietnam forum and lunch with Dragon’s founder Dominic Scriven and VEIL’s lead portfolio manager Tuan Le in London on 18 June. There is no requirement to be a VEIL shareholder – all are welcome. For more details and to register, go to veil.uk/2025-annual-general-meeting.

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