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Vietnam investors shrug off US trade risk for growth

[SINGAPORE] Foreign investors in Vietnam stocks are shrugging off the threat of additional US tariffs on the country's exports, even as the South-east Asian manufacturing hub draws increased scrutiny from US President Donald Trump's government.

Robust economic growth and the government's planned sale of stakes in state-controlled companies will offset dips in equity prices triggered by trade frictions, according to investors including Federico Parenti at Sempione Sim in Milan.

"I didn't change my view," said Mr Parenti, who helps manage about US$3 billion including Vietnam equities at Sempione Sim in Milan. "When you invest in a country, you do it for the long term."

Vietnam Dairy Products JSC and Saigon Beer Alcohol Beverage Corp are among the firm's holdings.

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Foreign investors have poured US$854 million into Vietnam's US$193 billion stock market in the 12 months through Aug 15, even as the benchmark Ho Chi Minh Stock Index was little changed in the period. The gauge has climbed 10 per cent so far this year, the most among South-east Asian markets and outpacing the 0.8 per cent rise in the MSCI AC Asean Index.

The government's sale of shares in state-enterprises helped raise about 5.16 trillion dong (S$308.1 million) in the first half of this year, adding to a record US$5.09 billion from initial public offerings last year. Corporate tax breaks, along with economic expansion exceeding 6 per cent, "augur well for the capital market", said Mark Mobius, who runs Mobius Capital Partners LLP.

To be sure, most investors can't ignore the risk of the US increasing duties on Vietnam goods, said Felix Lam, who manages close to US$2 billion in the Asia-Pacific equities at BNP Paribas Asset Management. While Mr Lam doesn't hold Vietnam shares as turnover is too low for his mandate, he said an increase in liquidity could allow him to buy the stocks.

"If trade negotiations take longer and are more severe, then Vietnam will be affected alongside other Asian countries," said Mr Lam. Still, he added, "one would expect that companies would have captured quite a lot of that in their share prices already."

The Trump administration has been increasing pressure on Vietnam to reduce its growing trade surplus with the US, including increasing to 400 per cent in July the duty on steel imports that it alleges originated in Taiwan and South Korea. Exports to America equalled 20 per cent of gross domestic product last year and almost 26 per cent in the first half of 2019.

For Bharat Joshi, who helps oversee US$650 billion as a fund manager at Aberdeen Standard Investments, Vietnam's domestic demand outweighs risks arising from trade tensions. The firm counts Vietnam Dairy Products as an "anchor investment" in the country.

"There is structural growth happening on the ground, you have rising middle-class income, demand for credit is starting to expand, and the government is doing all it can to privatise," said Mr Joshi.