An Investment Thesis on Vietnam
We are still in the midst of retooling our virtual investment portfolio and incorporating the lessons we learned during our first 3 months, namely the need for investment parameters. In the meantime, I’d like to share something on an investment idea that I’ve developed and acted on almost a year ago.
For disclaimer purposes: I am holding a position in a similar ETF (the VinaCapital Vietnam Opportunity fund), and this should not be misconstrued in any way as investment advice.
If you didn’t know, an ETF aims to track an index as closely as possible.
If the SP500 (which tracks the performance of the 500 largest companies in the US) is up by 10%, then if you’re holding an SP500 ETF correlating its movement, your investment should be up by 10%.
You can read more about index funds, or what Warren Buffet dubs as “the investment that makes sense most of the time”, here (our article about index funds).
You’ve heard of Index Funds that track the US index and how with an average annual return of 10%, it may be a more viable option than individual stock picking for someone who’d rather not pay attention to daily market gyrations. However, for someone with a larger risk appetite (like myself), why not venture out into an emerging market? This train of thought was inspired by the movements in the SENSEX index (the index that tracks the 30 largest Indian companies).
(Source : CNBC TV 18)
One of the things investors yearn for is a multi-bagger stock, which is a stock (or investment) that yields a return higher than 100%. Well, rather than finding an increasingly profitable business, a more macro approach would be to look for countries that are rapidly growing. This approach would allow an investor to benefit from a country’s rapid development with an index fund that correlates with the nation’s stock market.
Circling back to the SENSEX, I’m not well versed enough to know much about India’s economic outlook, whether there’s room to grow or if the economic boom is sustainable. Colleagues have noted that India currently looks a lot like China did 20 years ago. However, this got me thinking about nations that still have room to grow or are in the early stages of development. In South East Asia, Malaysia and Singapore are past the rapid development stage of the 80’s and 90’s, but then I remembered our neighbour, Vietnam. Part of what sparked this is hearing about how Vietnam is a growing destination for expatriates, signalling its attractiveness to those in higher income nations.
Rather than expand on Vietnam’s economy myself, here is an excerpt from The Edge:
“Vietnam is now known as a Southeast Asian country with a young demographic and growing middle-income group as disposable income grows in tandem with the economy — attributes that make it attractive to companies looking to tap into its growing consumer purchasing power”
Source : https://www.theedgemarkets.com/article/riding-vietnams-stellar-growth-potential
An economy that has a growing income bodes well for business; increased consumer spending can induce a cycle of increased investment and output. Another excerpt from this article also illustrates Vietnam’s importance in the global supply chain. You can read more about supply chains in this article from FLY.
“It is one of the fastest growing economies in Asia; it has managed to pick up most of the business lost by China in the ongoing trade war with the US, whilst still establishing solid relationships with both nations. Mr Sitkoff believes that Vietnam’s economy will continue to grow and the country will play a key role in the global supply chain, especially for American consumers.”
Source : https://www.thebci.org/news/vietnam-expected-to-be-a-key-player-in-global-supply-chain.html
Greatly supporting Vietnam’s importance in the global supply chain is how Apple INC, the 2nd largest company in the world, has moved parts of its production to Vietnam. You may notice behind your latest airpods that it says “assembled in Vietnam”, which differs from the almost ubiquitous “assembled in China” that you would find on older Apple Products.
Conclusion and an Important Note
Now, a big part of retail investing is that you really don’t need to justify a purchase to anyone besides yourself. The idea of Vietnam emerging as a formidable economy was enough for me to want to find an ETF that would allow me to share in the growth.
I opened the position on the 13th of October 2021, and it’s now currently up 2.85%. It’s worth noting that at one point (The 4th of January), my investment was nearly up 14%, but alas the lack of parameters means I did not sell it. It doesn’t bother me much, given I still see the long term potential of this investment. However, the key risk is that when the Federal Reserve hikes interest rates, emerging markets are the first to feel the pain, as investment begins to flow outwards. Either way, with one’s personal portfolio, it all depends on the risk one is willing to take, and there is a point in which I’d sell my position at a loss (10%). Until then, the best thing I can do is gather more information, which will either increase my conviction or weaken this thesis.
Also, just for kicks I guess we could have an update on our older portfolio
Author : Muhammad Bahari
Editor: Abigail Phang