On the Investment Frontier: Vietnam

As investors’ unease with China has grown, one of the top beneficiaries lies along its southeast border.

And while the government in that nation—Vietnam—is philosophically similar to China’s, it certainly appears as though it’s committed to taking a different tack than China President Xi Jinping with regard to business and commerce.

Instead of discouraging private investment, Vietnam’s Communist leaders seem to understand what they want to deliver for their people: A fast-growing economy that is a recipient of foreign technology and foreign capital that helps provide new high paying jobs for a young urbanizing population.

And as that seems to be the course on which they are set, we are consistently finding compelling investment opportunities across an assortment of sectors in the country.

Similar, yet Different from China
Like its neighbor to the north, China, Vietnam is a Communist country, run by the Vietnamese Communist Party.

Much like China 20-30 years ago, Vietnam embarked on an economic opening of sorts about 15 years ago—shortly after it became the 150^th member of the World Trade Organization in 2007. Subsequently, it made impressive progress, and as China has declined as a destination for foreign direct investment, Vietnam has been one of the many beneficiaries in Southeast Asia.

More specifically, in 2023, foreign investment in Vietnam neared a pre-pandemic high as it received $36.6 billion in commitments, highlighted by significant investments by Amkor Technology, Apple suppliers Foxconn and Luxshare-ICT, and LG Innotek. Two months into 2024, the Vietnamese government shored up its appeal to the tech industry by approving incentives for the development of high-tech parks, including the necessary infrastructure.

Home to around 100 million people, Vietnam doesn’t possess the massive scale of China or India, but multinational corporations are attracted to its hard-working, well-educated, and ambitious population.

Furthermore, the Vietnamese Communist Party appears to be as welcoming as it can be, upgrading strategic relationships with Japan, Thailand, other countries, and, of course, the U.S. The latter is a big step, considering the war in Vietnam ended just 50 years ago. But it solidified in September 2023 when Communist Party of Vietnam Secretary-General Nguyen Phu Trong welcomed U.S. President Joe Biden to Hanoi and announced his government now considered the relationship between the two countries to be a “comprehensive strategic partnership.”

A Deft Touch—When Needed—Emerges
Perhaps one of the biggest tests for the leadership of a Frontier Markets country is how it handles corruption and self-dealing.

As some corruption apparently arose amid a recent real estate bubble which also led to debt issuance by unqualified real estate companies along with bank lending to controlling shareholders, Vietnam’s government responded effectively and relatively quickly. Over the course of 18-24 months, a series of sober and sensible policies and regulations were implemented to resolve the problems. One conviction led to the death penalty.

Of course, those who expect miracles overnight expressed impatience with how the situation evolved, but we saw the developments as a reflection of a government focused on the bigger picture.

The property sector also contributed to a downturn in the nation’s stock market in 2023, when a decline in exports also weighed on economic growth. The setback hasn’t appeared to dim the nation’s growing reputation as a key supplier to the developed world, as growth has started to recover in 2024 and will resume in earnest in 2025 according to the World Bank.

National Accounts: Real Gross Domestic Product for Vietnam
(% growth, 2016-2026—actual and projected)

Source: International Monetary Fund via Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/VNMNGDPRPCPPPT

Financial System Can Present Challenges
Vietnam’s stock market is still dominated by domestic investors, although volumes have grown to an impressive US$1 billion per day. Outside of Frontier Market funds and a few dedicated regional vehicles from Thailand and Korea, foreign institutional investors are still relatively few and far between.

One of the more significant reasons it is classified as a Frontier Market is because of issues around stock market trading (trades have to be pre-funded) and trade settlement, which are criteria for assessment by MSCI. Some industry analysts anticipate the nation’s status will change to Emerging Market in the next couple of years, which is likely a goal for Vietnam, as that will raise the investment profile of the nation significantly.

We believe it may be a few years away as the nation needs to resolve some other issues as well. Nonetheless, its appeal as a potential destination for foreign investment appears to be steadily rising.

Regulatory Landscape Evolving as Well
Typically, early in Frontier Market cycles, the regulatory landscape slightly resembles the Wild West. Then, when something goes wrong, officials work to resolve it and digest it.

You regulate better and move on.

As that property-related situation unraveled in Vietnam, it appears as though select people started to fear retribution for decisions they made, whether those decisions were overtly corrupt or not, so they stopped making decisions. Meanwhile, there was a certain amount of rooting out the people who appeared to do wrong, and this all made the processes for approving, zoning, planning, permissions, and other bureaucratic processes slow down.

At the same time, many property companies that probably had no place issuing debt had issued debt. And although no one should have purchased the debt, some investors did.

Numerous challenges for the government, but what we've seen out of Vietnam so far is not an overaction to a tough cycle for a year or two. It looks like they're coming through it, and they seem to have come through it with a steady hand.

Commerce in the Shadow of China
As the Vietnamese leadership looks outward and assesses global commerce and its role with countries in the West and East, they know they must be very careful and delicate in terms of their relationship with the Chinese leadership.

They must tread a careful path.

That said, it's interesting that Vietnam decided to sign comprehensive strategic relationships with not just the U.S., but with Japan and other countries that are not aligned with the Chinese.

It appears as though they are slowly but surely developing relationships, politically and economically, outside of the Chinese realm, because they know such relationships could strengthen them both bilaterally and with regions as a whole.

For that, they know they need foreign capital and foreign technology, and they sense an opportunity with China seemingly headed in the opposite direction.

They've got a lot of work to do on infrastructure, but they are aware of that, they’ve talked about that, and they know what they've got to do. So, we believe that'll be happening.

Vietnam appears to be committed and interested in building and maintaining relationships with many nations, welcoming foreign money, and seeing it invested and developed and creating jobs higher paid jobs.

From our point of view, that’s very positive.

Consider this coincidence of factors (which we like):

• A government that encourages investment and growth
• Foreign interest in investing in the country—in terms of strategic investment, foreign direct investment venture, capital investment, and portfolio investment
• The people are ambitious, hard-working, well-educated, and want to make the most of their opportunities
• Politically, leadership has steered a path that should avoid any significant difficulties or confrontations with China while extending relationships with Western countries and other Asian countries

Altogether, we believe that if we’re looking for the country that we believe can develop very well and strongly over the next 10-20 years, we can't think of better potential than Vietnam.