The New Asian Dragon

Publisher: Castlebury Press

From the “Doi Moi” economic reforms initiated in 1986 to its accession to the WTO in 2007, Vietnam has transformed itself from an underdeveloped transitional economy to an attractive location for businesses. Yet, when compared to its giant neighbour China or other more economically developed economies in the ASEAN region, Vietnam remains relatively unknown to many international investors. Vietnam: The New Asian Dragon was written to educate such investors, by introducing the Vietnamese economy and business environment, with a focus on the equity market. 

Starting with an overview of the country’s demography and history, the book moves on to explain how Vietnam’s recent accession to the WTO has improved its trade relations with economic powerhouses such as the United States, China and Japan. Vietnam’s current economic growth path is comparable to that of China’s and the authors argue that it is likely to blossom into another Korea or Taiwan in the next 10-15 years. 

The next chapter describes Vietnam’s 20 fast-growing industry sectors, such as finance and banking, construction and infrastructure, and textiles. Each section begins with a brief overview of the sector market structure, its current state of development and the dominant players, which consist primarily of local enterprises that are either government-owned or have been recently equitized. 

With the VN-Index growing at a leading rate of 144% in 2006, Vietnam’s stock market was seen as an excellent opportunity for international financial investors to explore during the years of heady global growth in 2006 and 2007. One chapter details the current investment environment in Vietnam and offers profiles of the country’s two stock exchanges: Ho Chi Minh Security Trading Center and Hanoi Security Trading Center. The “OTC market”, which is defined as shares of companies that have been equitized but are still reluctant to be listed on the two stock exchanges, and the much less active bond market, are also briefly discussed. The book also profiles the country’s leading blue chips. These 13 companies operate in various sectors, ranging from finance and banking (e.g. Asia Commercial Bank), to technology (e.g. Corporation for Financial and Promoting of Technology), to dairy production (e.g. Vinamilk). Most of these blue chips were, at the time this book was written, traded at a price to earnings ratio of as high as 50 to 100 and 10 to 20 times their revenue. One notable example would be Vinamilk, whose shares have surged by almost 400% from January 2006 to March 2007. Even though some of these companies have sound fundamentals, the author argues that such ratios suggest an overheated market. To book includes a list of Vietnamese companies listed overseas, Vietnamese investment banks and funds and foreign-managed Vietnam-focused funds, together with a general tax guide. The book ends with a list of official and unofficial information and web resources related to investing in Vietnam. The authors do devote some attention to assessing the risks associated with investing in the Vietnam stock market, such as those relating to politics, corruption, uncontrolled expansions, economy, and others. This book was written in March 2007, when the overheated VN-index reached its all-time high of over 1,100 points. This was largely attributed to the enthusiasm of local investors and the massive trading rally since 2006. The VN-Index subsequently corrected itself to below 500 points by the later half of 2008. 

Vietnam: The New Asian Dragon is a useful resource to financial investors as well as companies seeking a basic introduction to the key sectors of the Vietnam economy. However its purpose is to offer practical advice and to describe the existing situation, rather than to provide deep analysis and insight as to long-tem trends. Vietnam has sustained impressive levels of GDP growth in recent years, and it is widely recognized to have gained much from WTO accession. In spite of the surge in inflation faced since mid-2008, the country continues to dazzle, with record levels of Foreign Direct Investment and healthy exports in spite of a global slowdown. However the roller coaster ride experienced by its stock exchange is a lesson in the risks and rewards associated with emerging market equities. Vietnam’s attractiveness as a manufacturing hub and an emerging market for discretionary consumer spending will probably outperform the attractiveness of its stock market in the mid-to-long term.