Tag Archives: Vietnam exports

The Opportunity in Vietnam’s Spat with China

Last week’s anti-China riots in Vietnam spooked investors, rattled the stock exchanges, threatened foreign business deals, and ignited conversation about whether that the political and economic risks in that region outweigh the potential rewards.  But where some see the unraveling of peaceful co-existence in Southeast Asia, others see a golden opportunity.

Are businesses and investors over-reacting?  Consider some of the more encouraging news coming out of Vietnam this month:

  • Samsung is going ahead with expansion of manufacturing in the northern provinces of Thai Nguyen and Bac Ninh.  As a result, about 50% of its smart phones made globally will be made in Vietnam.  Already, Samsung’s factory in Bac Ninh was one of its largest worldwide, and the company accounted for $24 billion in exports from Vietnam.  The Thai Nguyen factory opened in March will employ 16,000 workers and produce eight million units per month.
  • The Saigon port welcomed the largest ship ever docked there,  a 54,000 ton vessel able to navigate the river safely thanks to a mammoth dredging project that will allow ships of this size to save $500,000 a year in transit costs.  The port projects moving 120-150 million tons by 2025.

  • The investment ministry unveiled a proposed law that will cut red tape and streamline foreign investment by eliminating certificates for many projects, simplifying procedures, ending favorable treatment of domestic investors, and improving transparency.

  • Foreign investors have been snapping up stocks that domestic investors are rushing to sell in an over-reaction to last week’s riots.  Foreigners are taking advantage of sharp drop in the VN Index, which peaked at 610 points earlier this year and fell below 530 before climbing back to 544 today.

  • McKinsey released a study concluding that ASEAN, composed of Vietnam and nine other countries, will be the world’s 4th largest economy in 2050.

Business is getting done in Vietnam.  Opportunities abound.  The ugly events of last week are not likely to lead to war in the South China Sea.   More likely, they will turn out to have been an exchange of moves in a chess game of diplomacy that will help clarify the figurative boundaries between two of the world’s fastest growing economies.

Will Vietnam Achieve 14% Annual Growth?

Vietnam’s economy has grown 5% this quarter, slightly faster than the first quarter in 2012 and 2013, with a $1 billion trade surplus and growth especially robust in the Saigon region.  But the striking economic news in a country that was experiencing runaway inflation in recent years:  Vietnam’s consumer price index declined in 0.4% in March and now is below an annual rate of 5%.

The data suggest Vietnam is on an economic path toward reaching its long-term potential.  But what is its potential?  Some economists think Vietnam is headed toward the middle-income trap that stalls many developing countries, such as the Philippines, Indonesia, and Thailand.  Others see Vietnam as the Japan (or South Korea) of the 21st Century.

The latter viewpoint got a boost in a forum in Hanoi this week that featured Harvard’s Robert Lawrence, who forecast 13.5% economic growth for Vietnam in 2025.  That’s assuming implementation of the Trans-Pacific Partnership (TPP) agreement that is expected to dramatically increase Vietnam’s global trade.

Lawrence projected many other TPP partners (the US, Canada, Mexico, Peru, Chile, New Zealand, Australia, Singapore, Malaysia, Brunei, and Japan) would experience significantly slower growth.  His numbers suggested Vietnam’s exports would increase 37%, compared to 14% for Japan and 12% for Malaysia, and 4% for the US.

The TPP has yet to be completed, so Vietnamese officials were quick to point out their country would not necessarily benefit the most from it — because its economy is starting far behind the other partners.

 

 

Saigon Galloping in Vietnam’s Year of the Horse

This is shaping up to be a break-out year for Ho Chi Minh City (Saigon), Vietnam’s business and financial center, and its most populous city — 9 million headed toward 14 million by 2025.

Sales and services revenue is up 12% this year and approaching $5 billion. February exports are up 15% to $1.8 billion.  Agricultural production is up 6%. The city hosted nearly 400,000 tourists in February, a 10% increase, and licensed 2,700 new businesses accounting for 25,000 new jobs.

And all of this precedes the conclusion of Trans-Pacific Partnership (TPP) negotiations that are expected to boost trade further between HCM City and the US, Australia, Malaysia, and Singapore, among others.

Perhaps the strongest sign of robust economic conditions in HCM City is the rise in foreign direct investment (FDI).  The city says it granted 12% more investment licenses so far this year than at this time last year (46) — with an aggregate of $164 million capital, up 267%.

This suggests the year of the horse will be powerful for the former Saigon — and as goes Saigon so goes all of Vietnam.

The Beat Goes On in Surging Vietnam Markets

The year 2014 — the year of the horse — has greeted investors with disappointing results worldwide so far.  Today the Global Dow is down 1% (3% in Asia) amid anxiety about the collapse of emerging markets.  But in Vietnam the surge continues.

Investors are placing bets on frontier markets  — about 30 countries with relatively low capitalization and liquidity that are not yet considered emerging markets.  The best performers among frontier markets (and also among all markets) are Argentina and Vietnam.

The VN Index is up 14% so far this year (as is Argentina’s primary index) on top of a 22% gain last year.  After several years of economic turmoil, Vietnam has begun the year of the horse with a stronger economic footing that will help support high corporate dividends — for many companies in the range of 12% and above.

Vietnam, and the people who invest in Vietnam, are counting on the country’s continued  development as a major exporter of raw materials as well as agricultural and consumer products.  Vietnam achieved a favorable trade balance last year, and the surge in foreign investment that began in 2014 appears to be continuing.

Is there more room for growth in a frontier market that already increased 22% last year and another 14% in the first six weeks of 2014?  The answer would be “Yes” if you consider the fact that the VN Index was 574 at today’s close; that’s 49% of Vietnam’s market high of 1174 established early in 2008.

What Flappy Bird Tells Us about Vietnam

If you don’t think Vietnam has arrived yet as a player in the global economy, consider the case of Flappy Bird.  The sensational smart phone app dominated downloads of games on android and iTunes until its creator yanked it from the Internet last weekend.

The Flappy Bird inventor is a Vietnamese software engineer named Dong Nguyen, who lives with his parents in Hanoi.  He withdrew the app — even though it was bringing in up to $50,000 a day in ad revenue — because he was tired of the notoriety that was ruining his tranquil life.

A few years ago, millions of people in Vietnam didn’t have electricity, land lines, computers or access to the Internet — much less smart phones, and nobody in the Western world could have imagined a 29-year-old Vietnamese geek inventing a silly game that would consume hundreds of millions of hours that could otherwise have been spent on something more productive.  Yet that is exactly what has happened since Dong released Flappy Bird to the global economy last May.

Dong’s critics — and there are many of them — question whether he withdrew the game from the market as a publicity stunt to get people to focus on his next act.  He says the game disappeared because it is too addictive and because the international attention caused him too much grief.

A broader explanation might be cultural:  Vietnam has changed so dramatically and so fast that sometimes its ways of life cannot catch up with technology and market realities.  One of the cultural attributes of traditional Vietnam is a tendency not to bring attention to oneself — to be unassuming, modest, shy.  Could that be part of the reason Dong wants to get his life back?

The lesson for Western investors is they are well advised to learn the difference between cultural modesty and lack of initiative.  Vietnam is full of Dong Nguyens — millions of brainy entrepreneurs prepared to transform their own country and, in the process, infuse the world with Flappy Birds.

 

 

 

 

Vietnam Rewards Patient Investors

American news organizations like the Wall Street Journal and Bloomberg are reporting this week that Vietnam ended up with a better year economically than international analysts had expected.  Meanwhile, investors who had more confidence in Vietnam have been rewarded with a 23% gain in stocks so far this year and 35% since last Dec. 1 — plus double-digit dividends for typical publicly traded companies.

With the focus on China and other challenged emerging markets, Vietnam has quietly strengthened its global economic positioning over the past few years. This year its stock index has outperformed all others in Southeast Asia as its GDP rose slightly more than 6% in the fourth quarter and 5.4% for the year — ahead of last year’s 5.25% and Bloomberg’s 5.3% projection.

The main drivers of Vietnam’s recovery are exports — up 15% and now equivalent to 75% of GDP — and foreign investment, up 10% to $11.5 billion this year.  Pledged foreign direct investment was reported at $22 billion, up 55%.

Vietnam is expected to have a trade surplus of $863 million this year, up from $747 million last year.  Government statisticians also say Vietnam’s inflation rate is down from 7% last year to 6% this year.

All of this suggests Vietnam is in a strong position to continue its determined and persistent  march toward full economic development.  The government aims for a modest and achievable GDP growth of 5.8%, which will likely reward foreign investors for a third straight year.

Vietnam’s Out-of-Balance Trade Balance

Vietnam’s love-hate relationship with China has been centuries in the making, and now is embodied by fierce tempers over disputed islands and soaring trade between the two countries.

Vietnam and China announced this month they aim to achieve $100 billion in two-way trade by 2017 and $60 billion in 2015.  Voice of Vietnam reports $36 billion so far this year in China-Vietnam trade — which has increased more than 20% annually in recent years.

There are at least two problems with this phenomenal growth: (1) Vietnamese consumers tend to be skeptical of Chinese products, and (2) The trade is increasingly one-way — China-to Vietnam.  

In the first nine months of this year, 80% of the trade was China exports to Vietnam.  Moreover, Vietnam’s  imports from China increased 25% over the previous year while Vietnam exports to China rose less than 3%.  

The products traded aren’t favorable to Vietnam either.  Vietnam imported more than $1 billion each in machinery, telephones, computers, electronics, cotton, and steel — while Vietnam’s exports to China are mostly raw materials.

Even even though Vietnam is a major exporter of agricultural products (mostly to Europe and the US), China’s domination in Vietnam’s domestic market is growing in export of potatoes, ginger, lemon, grapefruit, pear, apple and garlic.  Because some retailers know their Vietnamese customers don’t trust Chinese products, they’re often disguised as grown in Vietnam, Thailand, the US and Australia.

Overall, Vietnam has achieved a reasonably healthy trade balance in recent years.   How did it accomplish that?  By trade with Europe and the Americas that is as imbalanced as China’s trade with Vietnam — in reverse.  So far this year, for example, the value of US-Vietnam trade was nearly $25 billion, 82% of which was Vietnamese exports to the US.  

The out-of-balance trade balances may not be sustainable.  If nothing else, it creates a diplomatic challenge for Vietnam, which wants the West’s help in fending off China’s most aggressive export of all: military might in the South China Sea.