International Relations

Why Vietnam is the new Asian tiger

18.12.2006

by John Stepek

See more by this author Related ArticlesWhat the US housing collapse means for Asian markets Forget the US - choose China Four Asian markets to buy into for the long term FREE email from MoneyWeekDiscover the latest profit opportunities and understand what’s really going on in the investment world with our punchy daily email. CLICK HERE Our Most Popular ArticlesWhat recent market falls mean for gold Could the US housing carnage spread to the UK? Key challenges to stock market stability Forget the US - choose China The return of risk Sign up now for our FREE personal finance email, written by our editor, Merryn Somerset Webb.Click here to sign up now for FREEYou'd have to have been living in a hole in the ground, probably on the Moon somewhere, not to have realised by now that China is set to be a very big growth story in the years ahead.

But you may not have heard quite as much about what investment bank Citigroup calls "the new powerhouse of south-east Asia" - Vietnam.

Why Vietnam is booming

The country is one of the fastest-growing in the region. GDP growth came in at 8.4% last year, and is set to be 7.8% this year, according to the International Monetary Fund - that's comparable to India.

Poverty rates in the country have been sharply reduced since 1991 - the percentage of Vietnamese people living below the global poverty benchmark of $1 a day has dived from 51% to 8%. And Vietnam has recently become the 150th member of the World Trade Organisation after a long and sometimes fraught discussion process.

Growing foreign investment and regulatory reform has seen the Vietnamese stock market explode since it was created in July 2000. Then it had just two listed companies with a total market capitalisation of $16.8 million (Ј8.6 million). Now there are around 50 listed stocks, with a market cap of $3.1 billion (Ј1.6 billion). That's still tiny compared to others in the region - but the government plans to expand it even more rapidly in the coming years.

Vietnam: Domestic investment set for take-off

This will be fuelled to a great extent by opening the market up further to foreign investment. But another important factor to bear in mind is the huge potential for domestic investors to start using stocks as a way to plan for their retirement.

Currently, only about a quarter of a percent of the population invests in stocks. But annual savings amount to 30% of GDP. That means there's a lot of money just waiting to be invested when equity investment becomes more accessible to domestic investors.

And with companies like Intel and Nike committing more and more resources to the country, the population is likely to keep getting wealthier