Thoughts on Investing in China, Vietnam

From Cambridge MA fund flow trackers EPFR Global report:

China’s resilient growth has been a key driver of flows into emerging markets equity funds in recent months. During the third week of August, however, doubts about the quality of the loans doled out at breakneck speed by Chinese banks during 1H09 prompted investors to book profits and take some of their recent gains off the table. EPFR Global-tracked China Equity Funds had their worst week since early 1Q08 while outflows from Asia ex-Japan and Global Emerging Markets (GEM) Equity Funds hit 24 week and year-to-date highs respectively.

While we have lightened up on China as its local markets fell 20%, as we reported yesterday, this is a buy opportunity. Shanghai is a very immature rumor-driven exchange and the pattern of panic selling followed by a new boost can be spotted again and again.

Writing from Moscow, Eric Kraus of Otkritie Financial Corp. tries his hand at forecasting where markets are heading. Short-term, he says to remain fully invested, with perhaps a bias toward moving into oil-related stocks and China.

But can this go on? Here is his reply:

The question remains, how far out on the ice we can walk before we break through. The rally is likely to continue for a while longer, but do not forget that it is essentially the result of unprecedented monetary and fiscal stimulus, and at least the latter will soon become unsustainable and may turn into a headwind.

Furthermore, a true V-shaped recovery would require more than just the inventory cycle – it would require a major upturn in the credit cycle – which we find most unlikely.

My Vietnam commentary (linked to the creation of an new U.S. ETF) has got a lot of play, so I follow up. Here are items about other ways to invest in Nam from readers in MD, NY and FL:

*(VCVOF.PK), VinaCapital Opportunity Fund, seems to be a good Vietnam Fund. As you described, I bought my first shares far too high and got crunched last year. Fortunately, I doubled up not far from the bottom. They are managed out of London but also have managers in Viet Nam. As the above symbol indicates, I bought them instantly through Fidelity. They also have a Viet Nam Infrastructure Fund that interests me a lot because it sells below NAV. However Fido had to get that one for me in London.

*Cavico Corp., one of the largest infrastructure and natural resources companies in Vietnam announced a reverse stock split to position the company to apply for a listing on the Nasdaq exchange. Cavico could become the first Vietnam based company to be listed on a major U.S market. Timothy Pham, a Vice President and Director of Cavico (and an American) is boosting infrastructure development in Vietnam as the company will soon begin building a 30 megawatt (MW) wind power plant.

Comments

[Michael Clark:]

GIE: I'm living in Hanoi now. The thing I'm most impressed with in Hanoi and other parts of Vietnam is how profoundly overbuilt Vietnam is. Empty hotels, empty houses, empty golf course, empty tourish centers....

Any comment on this?

Aug 30 05:51 AM

[Alan Young:]

How can you write an article about investing in Vietnam and fail to mention the new Market Vectors Vietnam ETF (VNM -- incorrectly tagged by the editors here as VMN)?

It started trading over a week ago, and for several days was trading at a high premium--I guess because there were plenty eager buyers (and perhaps a failure by the sponsor to keep the shares liquid enough to track the NAV?).

Aug 30 02:39 PM

[kiron:]

Look, it is clear that China is a bubble waiting to burst. The only saving grace is that the Chinese authorities will be careful and cautious about another collapse. They certainly have the financial resources to stave off a total collapse. However, if you believe in the China story, you really must believe in the Tooth Fairy as well. It is rumour driven, manipulated, retail based, non transparent and suicidal, unless you are part of the CLUB
Have fun, stay well and enjoy.
I am
Kiron

Aug 30 04:03 PM

[Mad Hedge F...:]

Look at the population pyramid for Vietnam. This shows a high birth rate producing ever rising numbers of consumers to buy more products, generating a rising tide of corporate earnings, leading to outsized economic growth without the social service burden of an aged population. This is where you want to own the stocks and currencies.

Aug 31 10:24 AM

[Ben Gee:]

The stock market, real estate speculation, are the games of the rich or at least people with money or people able to borrow money. Most of the ordinary people are much less affected. When the stock market collapsed last year, Chinese migrant workers went back to the country side. You may not believe this, but the country side prospered because it no longer has a shortage of labor. Now, the economy is coming back, the cities have an awful time of finding enough of workers.

Aug 31 11:24 AM

[Paul Harper:]

also, the biggest telecom opportunity going, which is why $VIP & $MBT are both in there. In the region of current 24% penetration. So have to agree with your synopsis here.

"Look at the population pyramid for Vietnam. This shows a high birth
rate producing ever rising numbers of consumers to buy more products,
generating a rising tide of corporate earnings, leading to outsized
economic growth without the social service burden of an aged population."

Aug 31 01:03 PM

[Doi Moi:]

I have lived in Vietnam for more than 10 years and I am sure that has been to Vietnam during that time must appreciate the potential that this country presents. Even today while the rest of the world is languishing in economic chaos, Vietnam is forging on with 4.5% growth. Mad Hedge is right on the mark with his comments; the population pyramid is probably one of the most attractive in the world. Often Vietnam is portrayed as a little China, but while there are similarities, there are also major differences, the population curve being one, also the size and need for foreign capital being others. I look at Vietnam more akin to post war Japan and post war Korea. Think about how those countries grew in the space of 30 years. Vietnam is about 5-10 years into this cycle. There's plenty of growth to come, but you do have to be patient. Vietnam is not a speculative play if you take a medium term view.

Sep 02 10:07 PM

[Jim Van Mee...:]

I really like to read some commentary about EFTs vs ADRs. It would seem that you could cherry pick the best ARDs out of and EFT??? Comments?

Sep 04 04:18 PM