So far in 2022, Vietnam’s stock market has performed worse than any other country. That could change in 2023. The country is increasingly becoming China’s extended workbench. But companies from other countries are also investing in Vietnam to make themselves less dependent on China.
Betting on losers – the so-called turnaround strategy – rarely pays off. Anyone who takes the loser shares of the current year into their portfolio and hopes for great catch-up potential will usually be disappointed. This is shown by studies over long time series. The momentum strategy promises more success, i.e. keeping the stable performers of the current year in the portfolio for the coming year.
Gottfried Urban is the founder and managing director of Urban
However, this only applies to investments in individual stocks. This is different when looking at countries. The five best country exchanges in 2022 so far have been Turkey, Chile, Brazil, Mexico and Qatar. Interesting at first, but not my favorites for 2023. I tend to focus my attention on the countries in the bottom third. In mid-November, Germany, Taiwan, Sweden, China, Poland and Egypt, among others, were in the last third of the country returns for the current year. Taillight Vietnam even suffered a minus of 46 percent on a dollar basis.
Unlike individual stocks, the losing strategy works better at the country level. First of all, country funds are less risky than a single stock that has just fallen sharply. In addition, the state and the central bank are very likely to intervene to provide support if a country exchange is under pressure for a long time.
Vietnam in particular could become an interesting investment for the next one to two years. Vietnam is a big beneficiary of companies’ outsourcing strategies from China. Large companies will shift more and more production from China to Vietnam. For example, the current iPhone is not only to be produced in China, but also in India and Vietnam.
Even if the risks are high, Vietnam’s economy is one of the fastest growing in Asia. Competitive costs, a young workforce and government stimulus programs could support this. The economy is growing at around six percent with inflation at around four percent per year.
Chancellor Scholz traveled to Vietnam in November to promote the diversification of economic relations and supply chains for Germany as well. He was accompanied by twelve well-known German business leaders.
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Vietnam is analytically one of the cheapest countries. The rating of the country index is even below the Dax level after the sharp drop in price – with better growth prospects. Another advantage is that the frontier country has been upgraded to an emerging country. As a result, Vietnam will be included in the major emerging market index families by 2024 at the latest.
Those who already have China in their depot can now balance Asia with Vietnam. Either through index investments, active country funds or frontier market funds that invest in Vietnam and are somewhat broader.
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