To The Moon

Vietnam - the rise of a new Asian Tiger

Vietnam has been an interesting country following news of international players like Samsung relocating their operations from China to Vietnam. Likewise, Intel relocated their plant from China to Vietnam too. What is so special about this country? Should we consider adding this country to our investing watchlist?

This is a compilation of different articles, research and reports.

Background of ASEAN (from Wikipedia)

Map of ASEAN

ASEAN is officially the Association of Southeast Asian Nations, is a political and economic union of 10 member states in Southeast Asia, which promotes intergovernmental cooperation and facilitates economic, political, security, military, educational, and sociocultural integration between its members and other countries in Asia. ASEAN's primary objective was to accelerate economic growth and through that social progress and cultural development.

Members of ASEAN

If ASEAN were a single country, it would already be the seventh-largest economy in the world, with a combined GDP of $2.4 trillion in 2013 (Exhibit 1). It is projected to rank as the fourth-largest economy by 2050. (McKinsey'sreport) This is a region where we can expect great growth over the next few decades.

https://en.wikipedia.org/wiki/List_of_ASEAN_countries_by_GDP

From the list above (Wikipedia), Vietnam has about 98.3 million population and has a GDP (PPP) per capita of USD$11,677, ranking 6th in ASEAN.

Gross domestic product of the ASEAN countries from 2016 to 2026

The following is an extract from "Gross domestic product of the ASEAN countries from 2016 to 2026" by Aaron O'Neill (Nov 30, 2021)

In 2020, the estimated total GDP of all ASEAN states amounted to approximately 3.08 trillion U.S. dollars, a significant increase from the previous years. In fact, the GDP of the ASEAN region has been skyrocketing for a few years now, reflecting the region’s thriving economy.

Power in the EastThe Association of Southeast Asian Nations (ASEAN) comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. It was established in 1967 among five of these countries (Indonesia, Malaysia, Thailand, Singapore, and the Philippines) to facilitate trade and economic growth, as well as promote cultural development and social structures in the region. To date, they have been joined by another five nations.

The ASEAN market

The founding of the ASEAN organization provides the collaborating nations with more autonomy and influence on the global economy than they would have had by themselves. Additionally, struggling participating countries, such as Laos, are given an opportunity to grow on an ASEAN single market.

GDP of Vietnam

The Gross Domestic Product (GDP) in Vietnam was worth 271.16 billion US dollars in 2020, according to official data from the World Bank. The GDP value of Vietnam represents 0.24% of the world economy.

Source: World Bank

GDP of Vietnam till 2020

Vietnam's GDP in 2016 is USD$252.15B and is expected to hit USD$630.47B in 2026, this is 150% growth over an 11 years period. On the other hand, Singapore's GDP is expected to grow from USD$318.75B to USD$483.46B (2026), at 51% over the same period.

Foreign Direct Investment (FDI) into Vietnam

CNBC news:

Vietnam received $4.42 billion inforeign direct investment (FDI)in the first quarter, up 7.8% from a year earlier, the Ministry of Planning and Investment said on Monday. FDI has been a key driver of Vietnam's economic growth. Companies with FDI account for around 70% of the Southeast Asian country's exports.

FDI pledges — which indicate the size of future FDI disbursements — fell 12% in the January-March period from a year earlier to $8.9 billion, the ministry said in a statement.  Of the pledges, 59.5% are to be invested in manufacturing and processing, while 30.3% would go to real estate, it said.

FDI into Vietnam (2000 - 2020)

Vietnam's FDI grew from $1.3B (2000) to $15.8B (2020).

The RCEP advantage is slow to take off in Vietnam but opportunities remain

By Asia InvestmentResearch

The Regional Comprehensive Economic Partnership (RCEP) is the world’s largest free trade area and includes all ten ASEAN nations (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam) together with China, Japan, South Korea, Australia, and New Zealand. The agreement came into effect on January 1st this year, just over six weeks ago. RCEP collectively possesses a market with 30% of global GDP, and 30% of the global consumer population.

Vietnam, which suffered during Covid in 2021, saw a slight decrease in FDI into the country, realizing some US$19.74 billion over the year. That has been further compounded by closed borders and an inability for investors to travel. Outbound investment was also slow, with just one deal of note conducted by Vietnamese investors in Q4 2021, being a small stake in an ASEAN-based gaming/blockchain company.

Why is Vietnam interesting?

Communist and Capitalist History

Vietnam used to be part of the French Indochina and there are many French influences in their culture and language. Following the Vietnam War in the 1960s, the US has been helping them to develop into a capitalist economy. Thus, Vietnam has experienced both communist and capitalist influences and would be able to navigate a world of both. This is needful as China rises into prominence and is expected to take over the USA as the #1 economy in the world by 2033.

Current International Presence

Some of the top consumer brands have most or a significant amount of manufacturing in Vietnam. The following is an extract from this article:

• SAMSUNG - There are two major manufacturing plants in Vietnam, near HCMC and Hanoi, wherein over 50% of all Samsung smartphones are manufactured. Samsung continues to invest more capital into Vietnam: in May 2020, Samsung announced they would open another smartphone factory in Vietnam, as well as another factory in Ho Chi Minh City to make televisions, air conditioners and washing machines. Furthermore, in 2022, Samsung is planning to relocate its major R&D operations to the west of Hanoi, making Vietnam its largest R&D center in South East Asia. In contrast, Samsung has been closing plants in China. Together, this is poised to make Vietnam the largest manufacturing base for Samsung
• NIKE - According to Reuters, about half of all Nike shoes are made in Vietnam
• INTEL - Of all its global sites, Intel has its largest assembly and test site at the Saigon Hi-Tech Park, near Ho Chi Minh City. Apart from this Vietnamese site, Intel operates seven other assembly and testing facilities in the USA, Costa Rica, China and Malaysia.  Intel continues to invest large sums of money into Vietnam, recently adding $475 million towards enhancing Vietnam’s production of 5G products and its 10th generation core chips.
• FJÄLLRÄVEN - It is estimated that 70% of Fjällräven products were manufactured in Vietnam, while the remainder were made in China
• ADIDAS - Although China has more factories (103 compared to 76 in Vietnam), Vietnam has the largest workforce producing Adidas products: there are over 200,000 workers in Adidas-supplying factories in Vietnam, whereas China has only 88,000 workers.  in 2017, the CEO of Adidas (Kasper Rorsted) made a statement that 44% of Addidas shoes and boots were made in Vietnam.
• LG - Beyond phones, LG continues to invest more into its Vietnamese operations, with a recent investment of $750 million into organic light-emitting diode display manufacturing plants close to Hai Phong (near Hanoi). This brings LG’s total investment into Vietnam at over $3 billion, as of November 2021.  Even more importantly, LG is building a second research and development center in Vietnam, which, much like Samsung, demonstrates LG’s confidence in the intellectual capital of Vietnam.
• THE NORTH FACE - It is estimated that 57% of The North Face products were manufactured in Vietnam — by far the majority. The remainder were made in Jordan, El Salvador, Bangladesh, Indonesia, and Cambodia.
• FOXCONN - The Taiwanese company Foxconn is the key technology supplier that undergirds Apple’s mobile products as well as Google’s Pixel 5. In a 2020 Annual General Meeting, Foxconn Chairman Young Liu stated, for the first time, that Vietnam is Foxconn’s that largest manufacturing hub in Southeast Asia.  in 2018 and 2019, Foxconn invested over $200 million into Vietnamese production, compared to over $370 million invested into India
• MERRELLSFOOTWEAR - It is estimated that 70% of Merrell footwear were made in Vietnam, including the iconic Moab series. Others were made in Cambodia or India.

There are many more brands that are considering moving to Vietnam or have made tentative steps to de-Sinoize their supply chains.

The following brands source a significant percentage of their goods made in Vietnam or manufacture directly in Vietnam, but as far as we can tell, Vietnam is not their majority supplier:

• Sony
• Honda
• Prada
• Sharp
• Canon
• Hampton Bay
• Meindl

Vietnam has attracted both manufacturing and research facilities of international companies. It does speak well of its competency and infrastructure to support such businesses.

CONCLUSION

In lieu of the developments, Vietnam can be well worth our time to monitor or include as one of our portfolios.

1D chart of VanEck Vietnam ETF (VNM)

Personally, I am monitoring the $VNM ETF as I do not have access to Vietnam Stock Exchange from our current brokers. As always, let us research before investing.

@TigerStars