Photo credit Kateryna Babaieva
Previously, we argued that there is a generational investment opportunity in Vietnam, analoguous to investing in EM in the early 2000s. In this post, we discuss the ways in which retail investors can directly invest in one of the fastest growing economies in the world. We cover equities, bonds, consumer loans, and some notes about real estate and start-ups.
A lot of institutional and start-up investors agree — Vietnam is the 3rd-most popular investment choice for Asean start-up investments in 2020 .
While Vietnam has made great strids in increasing its openness to foreign investment, there are surprisingly few ways for retail investors to participate in Vietnam’s generational bull-run.
Before considering Vietnamese equities, one must first understand the foreign-ownership caps placed on Vietnam’s publicly-listed companies. These caps are generally set by the government on a sector-by-sector basis, and are routinely being tweeked or adjusted or rumoured to being removed altogether.
Currently, most of the large-cap stocks have hit their foreign-ownership limits, creating a two-tiered market on Vietnamese exchanges — this causes serious price-distortions for foreigners. Such distortions mean that it is not so easy to effectively participate in Vietnam’s growth via stocks.
Funds and ETFs with Exposure to Vietnamese Equities
In North America, there are only two liquid exhange-traded products that have substantial exposure to Vietnam:
- VanEck Vectors Vietnam ETF VNM (with 70% being Vietnam-domiciled entitied).
- iShares Frontier Markets ETF FM (with a 15.49% allocation to Vietnam, 2nd to Kuwait 20%)
VNM has an annualized 5-year total-return of 6.76%/a, while FM has an annualized 5-year total-return of 6.70%/a. Both have relatively high expense ratios and trading spreads. Both are heavily tilted towards real-estate, construction, and financials.
Beware Passive Investing in Vietnam
Investors should think carefully whether it makes sense to invest in passively-indexed instruments in countries like Vietnam. There are fewer theorectical reasons to believe in the efficient-market pricing of Vietnamese equities, compared to developed markets.
Consider the foreign ownership caps, the difficulty in scrutinizing Vietnamese companies’ financials, as well as the overall murky regulatory environment: these difficulties conspire against passive-indexing.
Instead, investors should strongly consider actively managed funds, for example:
The graph below compares the performance of VinaCapital’s VOF (in purple) versus VanEck’s VNM ETF (in red) versus the Vietnam Index (USD, in green). While the US-based VNM ETF is back to its Covid-lows in Dec 2022, the Vietnamese funds and index are still up massively (>80%). The difference in USD-performance of these funds/indices is stark, to say the least.
Vietnamese Stock Picking: ADRs and IPOs
There are only a few Vietnamese companies with ADRs that trade on Western exchanges, making stock-picking less realistic for foreigners — unless you open-up a trading account on a Vietnamese brokerage, which is legal and possible to do remotely.
Soon, there may be a flurry of Vietnamese stocks that choose to IPO in the USA; for example, Bamboo Airways has long been rumoured to do so, and the EV company VinFast has filed to IPO in the USA in early 2023 in order to tap into the “ESG” trend.
Such companies cannot be listed on Vietnamese exchanges until they are profitable — a condition of Vietnamese exchanges that stymies start-ups and growth-companies, but may end-up benefiting Americans.
Opening a Trading Account in Vietnam as a Foreigner
Foreigners are allowed to remotely open-up trading accounts with Vietnamese brokerages, such as SSI. If you want to sign-up , you’ll need to translate and notarize your banking details and personal information. Electronic translation and notarization are suprisingly not-difficult in Vietnam, if you are willing and able find a trusted party on, e.g., Fiverr.
Some facts to think about before opening up a trading account in Vietnam:
- be aware the foreign ownership caps;
- be aware of tax: your entire position is taxed per trade (not just the gains), at 0.1% NAV, plus fees; and
- be aware of capital controls that limit your ability to get your money out of Vietnam once you exit your positions.
Read more about the latter point below.
Investing in Vietnamese Bonds for Foreigners
Like stocks, there are only a few Vietnamese corporate bonds available on developed market exchanges, such as Vinpearl. If you can sign-up for an investment account at a Vietnamese brokerage, such as TechcomBank or SSI, there are a few bond mutual funds that have a decent yields in the range of 7-10%/a, such as the SSI BF, or the Techcom Bond Fund. These are two of the largest and most respected financial firms in the country.
Such funds typically have a 1%-2% expense ratios, and a minimum lock-up period of 2 years.
Alternative Lending Platforms in Vietnam
Vietnam is hungry for capital. This has fueled the experimental use of alternative lending platforms such as Mintos and Peer Berry, which are open to European, UK, Canadian and Australian investors. These platforms advertise themselves as “P2P” platforms, not unlike LendingClub. However, it may be more accurate to categorize them as crowdfunding “covenant-lite” loans to start-up fintech companies.
These P2P platforms cater to fintech-lenders in Eurasia, including Vietnam. Direct access to Vietnam’s P2P-lending market is also possible on Vietnamese platforms like Tima.vn, some of which are open to foreigners.
Prior to 2020, consumer-lendings companies in Vietnam, such as Sunfinance.group and Senmo.vn, generated high-yields >20%/a for terms of less than a year. Currently, the yields have fallen below 13%, making their risk-reward calculation more tenuous.
P2P Risks in Vietnam
The Eurasian-P2P sector is slowly maturing but has a sordid history. Potential investors should acquaint themselves with the history of dubious platforms and lost investments, such as:
- the bankruptcy of Singapore-based Cashwagon (a Mintos loan-originator) after being accused of predatory lenging in Vietnam;
- the high number of defaults during Covid-19;
- potential conflict of interests between platforms and their loan-originators; and
- the history of fraudulent P2P marketplaces such as Envestio and Kuetzal and more.
Vietnamese Real Estate: Risky for Foreigners
Foreign persons cannot legally own land in Vietnam. Alternatively, they may rent the land for long periods of time (like half-centuries). They can officially own the building on top of the land — but not the land itself. This makes direct real estate investing less enticing to foreigners.
Land-ownership restrictions aside, there are still the difficulties that foreigners face in navigating Vietnam’s byzantine real estate sector: there are plenty of stories of sophisticated red-book forgeries and title-document fakes, as well as tacit government-regulatory processes that require a lot of tact. A foreigner would need to find a trusted on-the-ground team to consider embarking on such a journey.
However, the Vietnamese public equity indices are heavily weighted to the real estate and financial sectors. Therefore, a bet on Vietnamese public equities is already a large bet on Vietnam’s real estate sector.
The Growth of Vietnamese Start-Ups
Vietnam has an amazing legacy of private, small-scale entrepreneurship. A chat with any elderly person will reveal a litany of incredible stories of economic agility during the command-and-control era in which people had to be very creative to acrue modest comforts.
This entrepreneurial spirit is beginning to express itself in an investible ecosystem of information-technology start-ups (e.g., see the new Start-ups 500 list). One can’t help but be impressed by companies like Base.vn or Bizzi.vn. Institutional investors are noticing and are pouring large sums into Vietnam’s start-ups .
High net-worth individuals and institutional investors have a growing availability of funds that can invest in this space. However, for small retail investors, the options are almost non-existent. Funds like Dragon Capital VIEL allows investors to get some indirect exposure to Vietnamese pre-IPO companies, but there is not much else.
Currently, we are unaware of any serious retail-focused start-up investment platform in Vietnam, like a Vietnamese StartEngine or FrontFundr. We have seen a few websites that have tried, but they have not attracted much liquidity. We are certain that this will be a large and interesting space in the near future.
Distributed Ledger Technology (Crypto)
In the dodgy heydays of the 2017 crypto bubble, Vietnam had its share of scam ICOs and disillusioned investors, like every country. Some legit-but-fledgling projects such as Factom (FCT) had made some airy promises about Vietnamese partnerships, but these seem to have died out.
As of 2021, during the most-recent crypto-boom, Vietnamese retail interest in crypto has been staggering. However, this hasn’t resulted in any high-profile crypto projects. This may be due to the distributed and trans-national nature of “DeFi”, the crypto-fade du jour, in contrast to the 2017 ICO boom which was more localized.
Notes: Getting Money In and Out of Vietnam
If you plan on opening a brokerage account in Vietnam, you can deposit your money into your trading account easily, quickly, and cheaply. For example, Wise (formerly TransferWise) and Skrill allow you to tranfer USD into a local Vietnam bank account in less than 2 days (sometimes even less than an hour) with highly competitive rates.
However, the moment you plan to exit your position and repatriate money abroad, it will be very cumbersome. For example, Wise/Transferwise will only allow money to be transferred into Vietnam — not out.
Thanks to readers, we have been informed about the following options for out-bound transfers:
- Timo a digital-native Vietnamese bank, apparently allows transfers out-of-Vietnam. You’ll need an official work-permit in order to open an account.
- Citibank’s intra-bank cross-border linkage: open a Chase bank in the UK, and likewise in Vietnam, connect the two, and then cross-border transfers are near instantaneous.
- Shinhan Bank Canada intra-bank cross-border linkage.
Read more about Vietnam’s meteoric rise
From average salaries, work-ethics, work parties, to superstitions and doing random errands for the boss — what is the work culture in Vietnam
We dispel some myths about poverty in Vietnam. We use data and statistics to explain the growth of Vietnam vs. its Asian neighbours
What do you think? Please let us know what you think in the comments section below.