On 10 September, US President Joe Biden signed a series of historic deals with Vietnam involving plane orders, semi-conductor design centres, the digital economy and human rights.

The rapprochement between two countries which were once so bitterly opposed was far more than symbolic and could mark a turning point both for foreign direct investment and for investors in Vietnam’s stock market.

Under the terms of the deal, Vietnam Airlines will buy around 50 narrow-body 737 Max jets from aircraft-maker Boeing (BA:NYSE) in a deal valued at roughly $7.5 billion.

Meanwhile, Microsoft (MSFT:NASDAQ) will make a ‘generative artificial intelligence (AI)-based solution tailored for Vietnam and emerging markets,’ said the White House, and Nvidia (NVDA:NASDAQ) will partner with Vietnam’s multi-national telecommunications company Viettel and multi-sector corporation Vingroup on AI projects in the country.

Dominic Scriven, chairman of Dragon Capital (a business which has been investing in Vietnam for almost three decades, even prior to the country’s stock market being launched), said ‘the deepening of the two nations’ trading relationship could see Vietnam taking a strategic role in the US’s goal to build a resilient semiconductor supply chain. This is a mutual commitment towards walking a forward-looking path of innovation, co-operation and mutual economic prosperity.’

Quynh Le Yen, a portfolio manager at Dragon Capital, said: ‘We consider this to be as significant an inflection point in the growth in the Vietnamese economy as the normalisation of trade relations with the US in 1994.

‘The upside potential of even deeper trade ties with the US heralds a further acceleration of Vietnam’s growth.’

Vietnam is among the US’s top 10 trading partners and the US is Vietnam’s second largest trading partner.

In 2022, bilateral trade totaled $124 billion, consisting of $109 billion of exports to the US and $14.5 billion of imports.

WHY INVEST IN VIETNAM?

One of the main reasons to invest in Vietnam is it has one of the fastest economic growth rates in the world.

According to the General Statistics Office, the country’s gross domestic product in 2022 was $409 billion, increasing 8% year-on-year. In 2023, the government is targeting GDP growth of between 5.8% and 6.2%.

Vietnam was also the UK’s 40th largest trading partner, according to the latest data from the Department for Business & Trade.

In the first quarter of 2023, total UK imports from Vietnam amounted to £5.7 billion, an increase of 15.8% or £776 million compared to the same period last year.

‘The macro picture looks positive as well, with Vietnam continuing to benefit from large conglomerates shifting manufacturing to the country. More than 50 large US firms have visited Vietnam this year, as have over 200 Korean companies,’ said analyst David Kimberley at Kepler.

Vietnam’s strategic location in Southeast Asia is another benefit due to its proximity to China’s borders, as is its membership of ASEAN (the Association of Southeast Asian Nations) and its access to regional shipping lanes.

SUCCESSFUL ECONOMIC POLICIES

In marked contrast with big Western economies, Vietnam’s central bank has been cutting interest rates which has been beneficial to its economy, helped market liquidity and encouraged investors to re-enter the financial markets to trade.

The current daily turnover across Vietnam’s three exchanges averaged $583.5 million in the first half of 2023 and rose to $843 million in June, following a fourth rate cut.

There are, however, a few reasons not to invest in Vietnam.

THE FIGHT AGAINST CORRUPTION

Vo Van Thuong, the new president appointed in March this year, has vowed to continue the country’s efforts to fight corruption.

Vietnam has been attempting since 2016 to crack down on corrupt business practices and restore trust in the ruling communist party but it has been an uphill struggle.

Some of the corruption has involved energy projects being delayed due to missing signatures from officials and several property developers being arrested.

Despite this ongoing fight, foreign investors haven’t been deterred. According to data from Investment Monitor, in the first 10 months of 2022, foreign direct investment in Vietnam rose by 82%, the second-highest growth rate in Asia-Pacific.

There are also ongoing geopolitical tensions with Taiwan to consider.

WATCH OUT FOR HIGH FEES

Anyone considering investing in Vietnam should note high charges imposed by the fund managers.

There are three Vietnam-focused investment trusts on the London Stock Exchange. VinaCapital Vietnam Opportunity Fund (VOF) has ongoing costs of 1.5% and a 3% dividend yield, according to AIC data. It has generated a 49.5% share price total return over the past five years.

Vietnam Holding (VNH) invests in high-growth companies in Vietnam focusing on domestic consumption, industrialisation and urbanisation. It has a 2.74% ongoing charge, the highest of its investment trust peer group, but the best five-year total return at 61.8%.

The other investment trust in the group is Vietnam Enterprise Investments (VEIL) which has a 1.9% ongoing charge and has generated a 27.3% five-year total return.

Kimberley at Kepler says of Vietnam Enterprise Investments: ‘The trust’s extensive, on-the-ground team has delivered annualised returns to shareholders in excess of 12% over more than two decades of investing in the country’s equity market.’

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