Why Vietnam is the Pacific’s bright star for investors

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There has been a bit of buzz about Vietnam. In just a few decades it has undergone a dramatic transformation from an agricultural society to one embracing the modern era.

Its youthful population and increasing middle class have helped drive solid growth and opportunities for global investors.

This up-and-coming market has not fully embraced capitalism. Indeed, it  remains a communist state but has managed to achieve an interesting balance. As tourism transforms the country and strong economic growth continues, I believe Vietnam is an attractive destination for investors as well as holidaymakers.

The election of Donald Trump as the next US president does pose an issue. The Trans Pacific Partnership, of which Vietnam would have been a key beneficiary, seems even less likely to move forward now.

Nonetheless, other trade deals are in the works. Take, for example, the Regional Comprehensive Economic Partnership, which Vietnam has joined along with nine other members of the Association of Southeast Asian Nations, as well as Australia, China, India, Japan, Republic of Korea and New Zealand. There could well be more new bi-lateral trade deals in the future.

Consumer story

Vietnam’s GDP growth averaged just shy of 7 per cent from 2000 to 2015. This economic boom has also lifted consumer buying power. In 1990 gross national income per capita was US$910 but by 2015 it had risen to $5,690.

As a result of rising income levels there are tremendous opportunities in the consumer sector. Milk, for instance. While per capita consumption of milk in the US has been above 100 litres a year, and China’s at 30 litres, Vietnam’s has been as low as 16 litres.

That number has been growing rapidly, so it is no wonder one of the milk companies we visited on a recent trip has seen profit growth every year for the past five.

The company produces fresh milk from local cows as well as reconstituted milk from powder, condensed milk, baby formula and yogurt. It exports not only to its neighbours in Asia but also to some markets in the Middle East.

Many companies in Vietnam are government-majority owned but privatisation is expanding, with plans to publicly list shares of a number in the future. Some will initially be listed on the Ho Chi Minh Stock Exchange’s secondary exchange, the UPCoM, which has less stringent disclosure requirements. However, we think many will eventually be required to list on the main board and institute broader disclosure.

The sale of some state-owned enterprises should help lower Vietnam’s rising national debt but foreign direct investments are strong, and industry and exports are doing well.

Tourism boom

As services (including tourism) represent more than 40 per cent of Vietnam’s GDP, this is the area we are most interested in.

Tourism is transforming Phu Quoc Island’s economy, which had previously subsisted on fishing. A major Vietnamese developer has built a huge complex at the northern part of the island, including 1,000 hotel rooms, 1,000 villas, a safari park (apparently one of the world’s largest), a water park and an amusement park featuring many types of roller coaster and other stomach-churning rides. There is also a 27-hole golf course, an international hospital and facilities for what could become a casino.

Another developer is building a complex on the southern part of the island, which includes a spectacular cable car that crosses the sea to neighbouring islands. Other new hotels are also being built along the beach.

Touring the villages around the island, we noticed there was still a dire need for better roads and facilities. But the influx of tourists and construction of high-end facilities to accommodate them have brought good-paying, steady jobs to many locals who had suffered a low standard of living before.

While some may criticise development in naturally beautiful places like Phu Quoc, it is important to look at the issue from various angles. For the 100,000-plus people native to the island, prospects are brighter. Hopefully, development both in Vietnam and elsewhere can come with the right intentions and balance of interests.

With their kind, hospitable nature and happy dispositions, the residents of Phu Quoc will make their island a tourism success. We are excited about the potential for further growth and trans-formation in Vietnam. The country has a bright future.

Mark Mobius is executive chairman at Templeton Emerging Markets Group

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