Vietnam

Back in June, and several times since, I have mentioned my belief that Vietnam and Pakistan will become important drivers in the global economy because of their size and the stock markets will become to be more and more important.












The KSE is Karachi and the chart that says Bloomberg is the Vietnam Index.

Last night on Asian Squawk Box Spencer White from Merrill Lynch was on to talk about both markets and how to access Vietnam.

Here are some factual nuggets about both stock markets. Vietnam's market first opened in July 2000. There are only 34 stocks listed, but more are on the way. Vietnam's economy has been growing at better than 7% since 2002. Wages are less than in China. They manufacture things like textiles, lower end electronics and White said they are a large exporter of oil and gas.

White also said they will join the WTO in the next year or two. Only a couple million dollars worth of shares trades per day for the entire market, so far there is very little foreign flow into Vietnam but he expects there will be more soon.

The market capitalization at US$1.2 billion is only 4% of GDP and the government is targeting 15% of GDP. White has weighted Vietnam at 3% of Merrill's regional model portfolio.

As for Pakistan, he said there has been US$ 350 million worth of buying by foreign investors in the last six months which is about twice the annual numbers for the last three years. He feels valuations are attractive at 10 times earnings, he said that regulatory risk there is relatively low because of the big benefits from foreign capital so far. In the last two years they have privatized US$4 billion worth of equity. There are no restrictions on foreign ownership which is unusual for that part of the world.

At no point was there any discussion about how to access Pakistan. He said that, although it takes a couple of weeks, you can open an account directly in Vietnam with a local broker. He also mentioned that there are closed end funds that trade in London and Dublin.

I went to TrustNet.com and typed Vietnam in the search box. The results offered several funds with just a little exposure to Vietnam. I found another fund called the Vietnam Opportunity Fund. It trades in London but is accessible through Schwab (it would be very expensive to trade however) under ticker VTOPF. I found one fund traded in Dublin called the Vietnam Growth Fund but there was very little information. You can read a little about the fund here in this Businessweek article from last spring. The article also mentions VTOPF.

The risks, social dilemmas and liquidity issues are big obstacles. Markets this small can have white-hot growth for the next several years and still be very attractive in the future.

The point here is not to run out and invest in these countries. I think there is tremendous value in being aware of different investment products out there and the evolution of these tiny markets. I think this can create a better this is how markets work type of knowledge.