There is no universal definition of what constitutes a frontier market. Essentially, it consists of companies and investments in nations that are economically even less developed than emerging-market countries, many of which don’t have their own stock exchange or sponsoring mutual fund. Vietnam and Cambodia are considered frontier markets.

Think of this article as an introduction to a part of the world most Americans know practically nothing about. A large number of Americans still consider Vietnam an “enemy,” and have since the Vietnam War. My objective is to help reconnect Vietnam, Cambodia and us (the U.S.). My hope is that you will visit this region and put these countries on your watch list.

This article will focus on Vietnam, mainly because Americans can invest in its stock market, which they cannot do in Cambodia, at least not yet. Cambodia got its own stock market in 2011 but has only one stock: water. It also has an index fund, but it also has only one stock. Funny, huh?

I have recently returned from my second monthlong journey to Vietnam and Cambodia, and here is my report.

Today, Vietnam is a model of prosperity, experiencing double-digit economic growth, practically no unemployment or poverty, with a literacy rate that should embarrass the rest of Asia. The overall standard of living has risen incredibly, and education and health care have greatly improved. Maybe it’s the crossover model between the free markets and centrally controlled government, but whatever the reason, they’ve been doing something right. Today, Vietnam’s population is 85.5 million and its adult literacy rate is 94%. 

The people were some of the happiest, friendliest and most content—just to be spending time with family and friends—whom I’d ever met. Everyone greeted me with a smile and seemed interested in making my stay unforgettable. I would highly recommend to anyone who fought in the war to go back.

The Vietnam I remember was one of the poorest, most war-wounded countries on the Earth. Lots of small towns, unpaved roads, pagodas, rice fields, shaggy-necked water buffalos and jungle—lots of jungle. Farmers wore cone hats and elderly women chewed betel nuts, as black teeth were considered a sign of beauty. And no traffic.

 Imagine my shock at seeing the Vietnam of today. Hanoi looked like a larger version of New Orleans, only without any zoning or sign control. A city of 9.1 million people—all driving their own motor scooters. Hanoi’s economy is booming. It is one of the fastest-growing cities in the world in terms of GDP growth (from 2008 on).

I stayed in the center of Hanoi, where the nights felt like a never-ending party. Crowds of young people filled the sidewalks, texting on cell phones or huddled together, the boys eating sunflower seeds and drinking Tiger beer as girls updated their Facebook pages.

I felt completely safe in Hanoi day or night, which was sort of a shocker given the number of our B-52s that had targeted Hanoi city. Everyone I got to know told me to tell Americans to come back to Vietnam, especially the soldiers who had fought in the war. I had read about similar reactions experienced by American soldiers during the occupation of Japan after WWII, and how the Japanese seemed to harbor no resentment. This may be explained by a Buddhist teaching called the “Doctrine of Mutual Arising,” which propounds that no one or no thing is to blame for whatever occurs, because all is mutually arising.

Every flight I took was on a brand new Airbus, usually with at least one American pilot in the cockpit. I found out later that in 2010 an international aviation law was enacted requiring that at least one person in the cockpit speak English, so in order to comply, the big Asian airlines have been in the U.S. actively recruiting English-speaking pilots.

The history of Vietnam is one of the longest in the world, with archaeological findings of human settlements as far back as around half a million years ago, and a cultural history of more than 50,000 years. Ancient Vietnam was home to some of the world’s earliest civilizations and societies—making it one of the world’s first farming cultures.

Relations between Vietnam and the U.S. have vastly improved. In early 1994, the U.S. lifted its economic embargo, which had been in place against the North since the 1960s. Full diplomatic relations were restored, and presidents Bill Clinton and George W. Bush subsequently visited Hanoi.

The People
Supercharged with energy and vitality, no matter how hot or humid it is, the Vietnamese people are remarkable. They are industrious, proud, stubborn and mischievous, yet traditional and conservative—particularly the older generation. The new generation is very different: Vietnam is a place to succeed and to ignore structures set by the old communist rule. The national mentality is to work as a team, in harmony rather than in conflict.
In Vietnam, the status of one’s family is more important than one’s salary.

A family’s reputation commands respect and opens doors. Extended family is important to the Vietnamese, and that includes second or third cousins—the sort of family that many Westerners may not even realize they have. The extended family comes together during times of trouble and times of joy, celebrating occasions and successes, mourning deaths or disappointments. Family is a source of strength for many of the older generation.

Face is all-important in Asia, and in Vietnam it is above all. Having “big face” is synonymous with prestige, and prestige is particularly important in Vietnam. All families, even poor ones, are expected to have big wedding parties and throw their money around like it’s water in order to gain face. Losing face is as important in the opposite way. For this reason, foreigners should never lose their tempers with the Vietnamese; this will bring unacceptable “loss of face” to the individuals involved and end any chance of a sensible solution to the dispute.

Politics And Economy
Vietnam’s political system could not be simpler: The Communist Party is the sole source of power. Officially, according to the Vietnamese constitution, the National Assembly (or parliament) is the country’s supreme authority, but in practice it’s a tool of the party, and carefully controlled elections ensure that 90% of delegates are Communist Party members.

Vietnam’s large population, its strategic location and its apparently seamless transition from communism have stabilized the economy. Vietnam’s growth rivals China’s. Times are pretty good for most people.

 The inflation rate in Vietnam was recorded at 5.78% in November 2013. The inflation rate in Vietnam is reported by the General Statistics Office of Vietnam. From 1996 until 2013, the Vietnamese inflation rate averaged 7.3%, reaching an all-time high of 28.2% in August 2008 and a record low of negative 2.6% in July 2000. In Vietnam, the inflation rate measures a broad rise or fall in prices that consumers pay for a standard basket of goods.

The country is stable. Tourism is booming, empowering a new generation of young Vietnamese to experience a better life. In their system of market-oriented socialism, capitalism thrives like never before, the dynamic private sector driving the economy. However, the state still controls a vast swathe of the economy. Over 100 of the 200 biggest companies in Vietnam are state-owned.

There are two stock exchanges, located in Hanoi and Ho Chi Minh City.

Vietnam’s stocks are valued at $45 billion, compared with $614.7 billion in Singapore, the region’s largest market.

Some analysts believe the VN index may reach 600 by the end of 2014’s first quarter.

 The VN Index (VNINDEX) has gained 26.42% year to date, making it Southeast Asia’s best-performing benchmark. With a day range of 502.04-506.52, the index is still less than half its March 2007 peak of 1,170.67. The index trades at 14.7 times projected 12-month earnings, 17% lower than the average ratio for the region’s five biggest markets.

The consumer price index (CPI) in Vietnam increased to 154.91 for 2013. (It is reported by the General Statistics Office there.) The CPI measures changes in the prices paid by consumers for a basket of goods and services.

Vietnam recorded a current account surplus of $9.061 billion in 2012 (reported by the Asian Development Bank). Current accounts are the sum of the balance of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid).

Foreign direct investment in Vietnam increased to $2.515 billion in the second quarter of 2013 from $1.931 billion in the first quarter of 2013 (as reported by The State Bank of Vietnam).

Foreign investment has been one key to the stock market’s growth. To help further attract investors, the two exchanges plan to add more products, such as covered warrants and derivatives, by the end of 2013.

Economic Problems
Since reforms started in 1986, the government has slowly introduced capitalism into its communist system. What is needed is for the government to accept its losses and sell off to private investors the state-owned enterprises that are inefficient and ineffective. Vietnam’s government debt is 50% of GDP; add in state-owned enterprises and it becomes 100% of GNP. Of the 93 state-owned firms, only 12 have been privatized.

Vietnam needs foreign investors to expand its stock market, so the government needs to set new ownership limits in order to lure international investors to a stock market that’s 14 times smaller than Singapore’s. This would raise the foreign ownership limit for publicly traded companies from the existing 49%, according to Vu Bang, chairman of the State Securities Commission, speaking in a recent interview. International investors are buying the most Vietnamese stocks sold in five years, lured by Southeast Asia’s cheapest valuations and government efforts to bolster economic growth.

Inflation slowed to 6.36% in May 2013, and exports climbed 15% in the first five months of the year. The central bank announced a $1.4 billion support package to assist home buyers and developers with subsidized loans for affordable housing.

Since the beginning of 2013, Vietnamese exports to the EU market have seen the highest growth rate at 22%, followed by America (14%) and Asia (13%), compared with the corresponding period last year.

Mobile phones rose 75.5%; computers and spare parts saw a 45.3% surge. Garments and textiles, shoes, computers, electronic products and spare parts from the sector made up 44% of the total.

Most Americans believe Cambodia is just another communist country. It’s not. Like England, Cambodia is a constitutional monarchy with a royal family.
The Cambodian culture is one of the most orderly systems of social and religious organizations on Earth—a beehive of tasks, roles and ceremonies. Almost everywhere is a shrine offering food for spirits.

 The family is their source of strength, security, day care, and—most importantly—spiritual connection.

Many young Cambodians are so talented. They’re street smart; they had to be in order to survive and one day there will be IT experts from Cambodia.
Their future rests in its young population of 15 million.

Cambodia is predicted to greet 4 million foreign visitors this year, an expected 12% rise year on year. The main draw is the temples at Angkor Wat.

Regional Outlook
Asia’s emerging markets—once a favorite with global investors—have been falling out of favor. Countries such as India and Indonesia have been hurt by a slowdown in growth as well as their widening current account deficits. Meanwhile, a decline in global demand has hurt export-dependent economies such as Thailand’s.

Since their peaks in May 2013, the Jakarta Composite Index and Thailand’s SET have fallen 21% and 19%, respectively. Meanwhile, India’s Sensex is down 12% and the Philippine stock index down 18%.

India’s growth rate has fallen to its lowest level in 10 years, while Indonesia saw its expansion rate dip to below 6% for the first time since 2010. There have been concerns that growth in these countries may dip further.

That, coupled with speculation about the U.S. central bank scaling back its stimulus programs, has seen investors withdraw money from these economies. That has resulted in high volatility in both the currency and stock markets.

Thailand has technically entered a recession after recording strong economic growth of more than 6% during 2012. The fundamental problem here is that it’s not just about exports; it is about domestic demand. The end of large-scale government investment projects following the devastation caused by flooding at the end of 2011 has also been cited as a cause for the fall in domestic consumption, which accounts for about half of economic output.

Emerging and frontier markets both offer the prospect of higher returns with higher risk. Both types of markets also carry several types of investment risk, including market, political and currency risk.