Investment strategies take advantage of Vietnam's economic boom

By YOUR MONEY MATTERSAARON LEITNER
Recently we looked at Vietnam's dynamic and growing economy. The question now becomes, how can an investor participate? First, let's take a brief look at recent numbers. Economic growth shows no signs of slowing down. Although inflationary concerns have increased with the rise of gasoline prices, this has had no impact on growth; industrial production in the first four months rose by 16.7% to $11.4 billion, primarily due to the domestic private sector. The sector's growth is a result of increased building demand. Steel production has surged by 31% year/year. The trade deficit increased almost 300% last month to an estimated $550 million, or a total of $2.26b. for the first four months of the year. It is up 10 times as compared to the first quarter of 2006. Imports of capital equipment continue to rise led by heavy equipment demand for Vietnam's first oil refinery. Strong growth in foreign direct investments has led to an increase in machinery imports for new factories. Consumer prices rose 7.2% year/year, the fastest pace in eight months, on higher food and housing prices. Construction costs have been escalating and it is expected that gasoline prices will move up sharply in May raising concerns of a rise in inflationary pressures. Tax revenues for the first quarter came to $2.6b., falling 21% short of target due to production costs, raw materials and energy, which reduced corporate profits. Falling tax revenues and lower prices of certain key products (i.e. motorbikes and electronic goods) also contributed to lower tax revenues. Meanwhile, equity markets fell sharply with the VN index down to 923 at the end of April, or 15 percent lower on the month. In the middle tier of the market, most names have fallen back 40-50% from their highs, creating opportunities for some investors. Trading value fell to an average of about $25m. per day, which is 50% of the peaks seen earlier this year. Corporate profits in listed stocks are expected to rise 35% this year. In the real estate market, the New Land Law of 2004 opened up foreign investment; designed to encourage growth in Vietnam's infrastructure. Local developers are dependent on joint ventures with foreign entities in order to finance projects. A young (65% of the population is under 35) growing urban middle class, with rising incomes, is seeking to leave the homes of their parents. This, coupled with a nascent mortgage market, is contributing to the increasing housing demand. Currently, the country suffers from a lack of supply across the whole real estate spectrum. The increased standard of living and urbanization has placed the current infrastructure under stress. The government is well aware that urban infrastructure development is critical in order to sustain the country's current 8% growth rate and to prevent a reversal in this trend. Investment considerations For the foreign investor, who requires a high degree of liquidity and outside expertise in investment selection, the following investment ideas merit consideration: * ABN AMRO Open End Certificate on the Vietnam Index - The rule-based ABN AMRO Vietnam Index aims to represent the Vietnamese stock market. The Index is denominated in Vietnamese dong and weighted according to market capitalization, comprising stocks with a market cap of at least $100m. that fulfill certain liquidity criteria. The Index weightings are adjusted every six months. The Index also offers the possibility of adjusting the composition of the listed stocks on a semi-annual basis, opening the door for the addition of new, more promising companies. At the same time, the maximum number of stocks listed on the Index is limited to 12, with a minimum of seven. At the time of launch of the Index, 12 stocks met the relevant conditions. The flexibility of the Index composition should ensure that it represents the overall current potential of the Vietnamese market as best possible. Symbol: VIECH (CHF) VIEUS (USD); Liquidity: Daily on the (SWX) Swiss Exchange; Details April 2007 * VIETNAMESE OPPORTUNITY FUND - This closed-end fund was launched September 2003 and is currently managing $475m. in assets. Its investment focus is listed and OTC traded securities; equity and debt to private companies; undervalued/distressed assets; privatizations and real estate. The fund's investment objective is to provide capital appreciation. Its geographical allocation is Vietnam (min70%), Cambodia, Laos and Southern China. Symbol: VOF; Liquidity: Daily on the (LSE) London Stock Exchange * VINANLAND - Vietnam Real Estate Fund. This closed-end real estate fund was launched March 2006 and is currently managing $205m. in assets. The fund invests in the Vietnamese property market through residential property, office blocks, leisure centers, hospitals and land banking (undeveloped property). The fund's investment objective is to provide an ongoing stream of income as well as capital appreciation. Its geographical allocation is Vietnam (min70%), Cambodia, Laos and Southern China. Symbol: VNL; Liquidity: Daily on the (LSE) London Stock Exchange The above investments mentioned are not recommendations by the author, but rather a few examples of available investment vehicles. Due to the high-risk nature of investing in Vietnam, determining the appropriate investment(s) should be done only with professional guidance. aleitner@tandem-capital.com The author is global investment strategist at Tandem Capital. *