We recently conducted a study trip to Ho Chi Minh City and Hanoi, Vietnam to observe and understand the country better as a booming manufacturing hub, and what investment opportunities its economy could offer. For this, we met with the key management of several listed companies (namely QL, NTPM, QES, CHINWEL, TECHBND, GAMUDA, JAKS) with site visits to their local plants there. From our meetings, we gathered that generally, Vietnam appears to be a vibrant place for doing business, with a large population (c.95m) and growing GDP per capita (2018: c.USD2,587, 8% 5-year CAGR). Additionally, its young population mix (c.70% aged 40 and below) could progressively bring about higher consumer spending level to the economy. For a different perspective, we also arranged meetings with a handful of government agencies, being the: (i) Hanoi Stock Exchange, (ii) the Ministry of Planning and Investment, and (iii) the State Bank of Vietnam. Representatives from the agencies, however, hold a different view and see growth numbers to be more relaxed in the near term, probable from the crowded macro and global developments seen during the previous years. Factors for past growth could include: (i) relatively lower cost of production, (ii) stability of currency (being pegged to the USD), and (iii) US-China trade war bringing the country to light as an alternative venue for re-shoring. However, the steady catching up of minimum wages would eventually diminish the low production cost advantage presently seen. Additionally, hikes in US fed rates (currently at 2.5%) could possibly draw investors back to the States. Still, at least in the near term, consensus views that economic activities could continue to flourish if the trade war prolongs and intensifies. In our view, we believe that there could be solid growth opportunities to be yielded by any Malaysian companies with businesses there, be it to tap on their large pool of rising income consumers or leaner operations fuelled by its cost advantages and government-backed incentives.

Eyes on the Gold Star. Statistically, Vietnam has been proving itself to be a highgrowth society, championing high GDP growth levels (2018 5-year average: 6.5%) against its ASEAN neighbours (2018 5-year average: 4.5%). This is perhaps thanks to the socialist-oriented market economy being viewed as a favoured trading hub for technology and manufacturing-based multinational corporations. The country also appears to be in a sweet spot, with geographical closeness to China allowing for easy trading of resources for its economy while at the same time, largely due to the ongoing US-China trade wars, making it an unlikely beneficiary due to businesses looking to set up operations outside of the Republic to avoid sanctions.

Additionally, Vietnam has a population of c.95m with a young demographic (c.70% being aged 40 and younger). While unemployment rates have registered at a low rate 2.5% (Source: CEIC Data), we gathered that there is much improvement, which could be done on job quality and income, with odd jobs being the primary source of income for the lower-income bracket. With this, we believe that there could be a large labour force readily available for new business (particularly manufacturers) to tap into. Further, minimum wage levels in Vietnam (which are region based) between USD125-180/month (Source: Vietnam Briefing) could be attractive for certain MNCs. In comparison, China’s minimum wage policies range between USD161-348/month (Source: China Briefing). (refer to Appendix I for selected statistics with regards to the Vietnamese economy)

In this study trip, we sought to meet with regulators and state government agencies with hopes of obtaining a high-level perspective on the country’s economic growth direction. For this, we were able to meet with representatives from the Hanoi Stock Exchange (HNX), the Ministry of Planning and Investment (MPI) as well as the State Bank of Vietnam (SBV). Our meeting with the HNX was to paint a better picture of the capital market scene, while our meeting with the MPI left us with more input on the foreign investment statistics of the country. Lastly, the SBV provided insight on the past challenges faced by the country and state measures in place to ensure sustainability.

We also visited several Malaysian listed companies with operations in proximity to Ho Chi Minh City and Hanoi to obtain updates on the group’s performance and outlook while at the same time, hoping to have a hands-on pulse of the Vietnam economy and market environment. The selected companies were QL (UP, TP: RM5.70), NTPM, QES, CHINWEL, TECHBND, GAMUDA (MP, TP: RM2.85) and JAKS.

Source: Kenanga Research - 12 Apr 2019