With Vietnam’s economy growing rapidly, many investors are looking for ways to invest in Vietnamese stocks. The Ho Chi Minh Stock Exchange is one of the fastest growing stock exchanges in the world, but investing can be tricky for foreigners. This article will examine methods for investors to gain exposure to Vietnam’s stock market, issues to be aware of, and provide an outlook on the growth potential of Vietnamese stocks. Key factors such as Vietnam’s economic expansion, demographics, and integration into global supply chains have driven strong earnings growth for many listed companies. However, convoluted foreign ownership laws, lack of transparency, and currency risks are headwinds investors must consider. Overall, investing in Vietnam offers exciting growth prospects but requires thorough due diligence.
Using ETFs provides easy access to Vietnam stocks
One of the simplest ways to invest in Vietnamese stocks is through exchange traded funds (ETFs) that track an index of Vietnam stocks such as the FTSE Vietnam Index or MSCI Vietnam Index. Popular ETFs include the VanEck Vectors Vietnam ETF (VNM) and the db x-trackers FTSE Vietnam UCITS ETF (XVTD). These ETFs hold a basket of the largest and most liquid Vietnamese stocks across sectors such as financials, industrials, real estate, and materials. The diversified exposure helps mitigate risks associated with investing in a single company. Additionally, ETFs handle currency conversions and regulatory compliance for foreign shareholders. A drawback is that ETFs have expense ratios around 0.6% to 0.8% which eat into long-term returns.
Global mutual funds and ETFs offer Vietnam stock exposure
Many Asia and emerging markets focused mutual funds have begun adding exposure to Vietnam stocks over the past decade. Funds such as Matthews Asia Growth Fund (MPACX) and Aberdeen Standard Asia Focus Fund (GAFMX)each allocate over 5% to Vietnam. On the ETF side, funds such as the Franklin FTSE Vietnam ETF (FLVN) hold a mix of Vietnamese stocks and ADRs. When screening for funds allocating to Vietnam, look for well-established funds from large asset managers that have a history of successfully investing in emerging markets. Most of them will invest primarily in larger cap Vietnamese stocks with sufficient liquidity and English disclosures.
frontier market funds are an option
Investors with higher risk tolerance may consider frontier market funds that dedicate 20% to 35% of assets specifically to Vietnam stocks.Examples are the Wasatch Frontier Emerging Small Countries Fund (WAFMX) and the VinaCapital Vietnam Opportunity Fund (VOF).Frontier funds are more volatile but can outperform with successful stock selection in high growth markets like Vietnam. They are able to invest in small/mid caps and find hidden gems before mainstream investors take notice.
Investing through DRs and ADRs
Many large Vietnamese companies have listed depository receipts (DRs) or American Depository Receipts (ADRs) on exchanges such as the London Stock Exchange, Frankfurt Stock Exchange, and the U.S. over-the-counter market. Each DR or ADR represents ownership in the shares of the underlying Vietnamese company. Popular DRs include Masan Group (MSN), Vinamilk (VNM),and Hoa Phat Group (HPG). DRs allow investors to gain exposure to leading Vietnamese companies while avoiding direct investment regulations in Vietnam’s stock markets. One risk is that DR liquidity is lower than what is available for the local shares in Vietnam.
Challenges of the direct investment route
Foreign investors can directly invest in and trade stocks on the Ho Chi Minh Stock Exchange and Hanoi Stock Exchange. However, this route involves stringent foreign ownership limits, lock-up periods, extensive paperwork, and the need to have a licensed local brokerage account. Investors are also exposed to risks such as trading halts and currency volatility. The QSIP Fund managed by VinaCapital is one of the only foreign funds approved for direct investment through a 49% ownership cap in any Vietnamese company.
Vietnam’s rapidly expanding economy presents lucrative opportunities but navigating its fledgling capital markets poses an array of difficulties for foreign investors. Utilizing indirect routes such ETFs, mutual funds, and depository receipts allow participation in Vietnam’s growth story without taking on excessive regulatory risk. As Vietnam continues to integrate into the global economy and improve market transparency, its investment outlook remains positive.