To capitalize on those strengths, Vietnam needs to develop a thriving middle class. And that starts with a well-educated workforce. Notably, the Program for International Student Development ranks Vietnam 17th in the world in terms of 10th grade reading, science and math skills, ahead of countries such as Australia, Austria and France.
“The country’s demographics, education and location (near key shipping lanes) are why companies such as Samsung and Intel are announcing major investments in the country,” says Darshan Bhatt, co-founder of Glovista Investments, an emerging markets-focused investment firm with $1.1 billion in assets under management. He adds that as labor costs in China and elsewhere rapidly rise, Vietnam is attracting a surge in foreign direct investment.
Geopolitics are also heightening Vietnam’s appeal. “The country is about to receive a lot of developmental capital from Japan, which sees Vietnam as a counterweight to an increasingly aggressive China,” says Auerbach Grayson’s Bhatnagar.
Market Vectors’ Nandakumar also thinks that an expected ratification of the Trans-Pacific Partnership, which includes countries accounting for 40 percent of global gross domestic product, will serve as an economic catalyst. “It should provide a major export boost to Vietnam,” she says.
Still, a huge gap persists between Vietnam’s economic potential and its current global market status. “The market is very reasonably valued, but global investors are scared off by a lack of liquidity,” says Glovista’ s Bhatt. Yet he thinks the coming privatizations will be a panacea.
“The government’s move to open up many more sectors [to investment] is a clear positive––the liquidity picture is changing,” he says.
The fund’s valuation could be another positive for the fund. Nandakumar notes that the holdings in the Vietnam ETF are currently valued at 1.3 times book value, right near a five-year low and half the multiple sported by the Market Vectors Indonesia ETF (IDX).
Against that backdrop, the skies do appear bright for long-term investors. The Vietnamese economy is expected to grow more than 6 percent this year (the best showing since 2011), and the country’s privatization plans, rising domestic consumption and broadening trade agreements could help return the country to the leading edge of emerging-market economic growth.
For now, the Market Vectors Vietnam fund remains the only pure-play ETF for this economic up-and-comer.