Vietnam: From Quagmire to Tiger

Mo 'the Macro Guru' Dinesh on VanEck Vietnam ETF (VNM-USA | vaneckvietna)

7/13/2025

Summary

Vietnam’s modern investment case begins in the mud of military history and ends in a boom that few expected. From its roots as a war-ravaged communist state in 1975 with a GDP per capita below $250, Vietnam has staged one of the most impressive economic transformations of the modern era. Today it is the fastest-growing country in Asia, outpacing China, with 6.6% real GDP growth and a newly emerging role as the center of gravity in the “China + 1” supply chain shift. But while the macro data is now undeniable, investor sentiment is muted. The early “next China” hype cycle has faded. Foreigners are underweight. The property market is depressed due to over speculation. Vietnam sits in a kind of blind spot — ignored by global capital flows, but quietly outperforming. The market is illiquid, the access isn’t easy, and the benchmarks are distorted by legacy property holdings. And that’s exactly what makes it interesting. Vietnam is a long-term macro trade hiding in plain sight — not because it’s a consensus darling, but because it’s not. This is not a short-term trade. It’s a structural allocation, for those willing to be early again.

Thesis

How Vietnam Became Investable 🛠️ From Post-War Ruins to Reform In April 1975, the war ended and Vietnam was unified under communist rule. What followed was not triumph, but collapse: food shortages, rationing, corruption, hyperinflation, and failed collectivization. By the early 1980s, Vietnam had a GDP per capita of just $238 — one of the lowest in the world. With Soviet aid drying up and internal pressure mounting, Vietnam had to get pragmatic. In 1986, the Communist Party launched a transformative policy initiative: Đổi Mới, or “Renovation.” Đổi Mới was not just an economic reform. It was a philosophical shift. The state retained political power, but allowed: • Private ownership of farms and businesses • Market pricing of goods and wages • Foreign direct investment • SOE reform and decentralization This hybrid model — authoritarian politics + capitalist economics — closely mirrored the early Chinese playbook, and it worked. 📈 The Growth Engine Ignites Between 1986 and 2010, Vietnam’s economy expanded rapidly: • Real GDP grew at 6–8% per year • Poverty dropped from over 70% to under 10% • Exports surged as Vietnam became a major textile and electronics manufacturer But it was 2011 — with the 10th Party Congress reforms — that marked the second leg of the growth story. These reforms focused on: • SOE restructuring to improve governance • Private sector empowerment as the primary driver of growth • Anti-corruption and administrative streamlining • Investment in infrastructure and technology The result: Vietnam has averaged 6.6% real GDP growth over the last decade, even as China has slowed. Foreign direct investment (FDI) is robust. Corporate earnings are rising. And the middle class is expanding. This isn’t just catch-up growth. Vietnam is building a real economy. 🌏 Vietnam = China + 1 In the 2020s, Vietnam has emerged as the single biggest beneficiary of U.S.–China economic decoupling. Multinational companies looking to diversify away from China have increasingly landed in Vietnam, thanks to: • A stable government with pro-business policies • An educated, low-cost workforce • A strategic location for shipping and logistics • Well-developed infrastructure (ports, power, fiber, rail) • Free trade agreements with both the U.S. and China Nike now exports more shoes from Vietnam than from China. Samsung manufactures half of its phones in Vietnam. Nvidia is opening a new R&D center. Taiwanese and Japanese supply chains are embedding themselves deeper into the Vietnamese ecosystem. Vietnam isn’t replacing China — it’s complementing it as a nimble, lower-cost node in the regional supply chain. This positioning gives Vietnam durable, structural demand for manufacturing and services — and the data shows it’s working. 📊 The Market Opportunity As of 2024: • GDP per capita has risen to $4,500 • The Vietnamese stock market trades at a discount to peers, despite superior growth • Foreigners are under-allocated due to access issues and regulation • Retail investors dominate flows — volatility is high, but the fundamentals are rising underneath Vietnam is still under-covered, under-owned, and under-loved — exactly what long-term investors should look for. 📍 How to Invest Access remains tricky. Many retail brokerages don’t offer Vietnam direct, so you need to use funds or ETFs. Here are three current vehicles: 1. VanEck Vietnam ETF (VNM) • U.S.-listed, liquid, but distorted by sector allocations • Currently 7% weighted to Vinhomes, Vietnam’s largest real estate firm, which has derated from 18x to 7x earnings. The Vietnamese property market is depressed from over speculation, so this could be a good entry point to get back into the leading developer. • This large holding in Vinhomes and Vingroup makes the Van Eck ETF potentially a value entry point 2. Vietnam Holding (VNH LN) • London-listed closed-end fund • Actively managed, smaller-cap exposure • Stronger historical performance than VNM 3. Lumen Vietnam Fund (UCITS) • Focused on quality companies in Vietnam • Outperformed VNM by avoiding the real estate downdraft While active funds have done better recently, VNM’s underperformance is explainable — and it may offer better upside from here. Owning a piece of Vinhomes at 7x earnings in a growing middle-income economy is not the worst position to be in. The real edge isn’t the vehicle — it’s the time horizon. This is a 5–10 year trade, not a 3-month trade. 🧠 Contrarian Angle Most EM investors are overexposed to China and underexposed to Vietnam — despite Vietnam outperforming on most growth metrics. The “Vietnam is the next China” story has cooled off. But that’s exactly why it’s interesting again. The Western narrative has moved on. Vietnam has slipped out of the spotlight. But under the surface: • Capital investment is rising • Household incomes are rising • Consumption and credit are expanding • FDI continues to surge This is EM investing at its best — find the country no one is talking about anymore, but that keeps delivering.

Risks

Every long-term macro trade comes with risks. Here are the key ones to monitor in Vietnam: 🇻🇳 1. Political Risk & One-Party Rule Vietnam remains an authoritarian, one-party communist state. While the system has been stable and pro-growth, there is always a risk of political repression, corruption scandals, or instability. Policy shifts can be sudden. ➡️ Mitigant: The Communist Party has been pragmatically reformist and focused on economic growth for decades. Stability is a key legitimacy pillar. 💸 2. Currency and Capital Controls Vietnam’s currency, the dong (VND), is managed — not fully floating — and can be subject to intervention. Capital markets are developing but still tightly regulated. Foreign ownership limits apply to many Vietnamese stocks. ➡️ Mitigant: The central bank has managed currency volatility reasonably well. Reforms are gradually loosening foreign access. 🏗️ 3. Real Estate Sector Fragility Vietnam’s real estate sector — especially large developers like Vinhomes — has been under pressure due to tightening credit, rising rates, and poor transparency. This has affected broader market sentiment. ➡️ Mitigant: The market has largely derated. Property remains a small part of GDP relative to peers, and other sectors (manufacturing, services) are driving growth. 🌍 4. Global Recession or Trade Slowdown As a highly export-driven economy, Vietnam is sensitive to a slowdown in global demand — particularly in electronics, apparel, and shipping. ➡️ Mitigant: Domestic consumption is rising as the middle class grows. Vietnam is increasingly insulated from global shocks compared to 10 years ago. 🐣 5. Liquidity and Market Maturity Vietnam’s equity market is shallow, volatile, and driven by retail flows. Foreigners have difficulty accessing some parts of the market directly, and bid–ask spreads can be wide. ➡️ Mitigant: Use ETFs or closed-end funds. Think in decades, not days.

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