The Economist Contrarian Indicator ...
The moment to invest in Vietnamese stocks has arrived. At least, that is according to the contrarian indicator that I have been waiting for …
I had this nagging feeling that general publications like BusinessWeek, The Economist and Time magazines are contrarian indicators. If we invest only when these magazines say that Vietnam is in trouble, and sell when things look rosy from these magazines' perspective, one would buy low and sell high, just what an investor should do.
In the heady days of early 2007, emerging markets like Vietnam were the place to be, the "must have" investments of the day, much like gold and commodities are now. At that time, the stocks in the Vietnamese HOSE/HASTC market was making new highs everyday.
The Economist published a very positive article on Vietnam's economy "Vietnam: Plenty to Smile About", on 29th of March 2007, which began with:
A SUSTAINED boom, with annual economic growth consistently around 7-8% since 2000, has transformed Vietnam. Ho Chi Minh City (Saigon), its largest conurbation, is bustling, confident and expanding fast …
If at that time one saw this article and sold Vietnamese stocks, it would have been a great trade.
From the high of more than 1000 on the VnIndex, it subsequently dropped to a low below 250 in the dark days of March 2009, a drop of more than 75%. Even now, the VnIndex is still >60% off the levels seen in 2007 at 450.
Since then, a lot has happened in Vietnam ... double digit inflation, >30% depreciation of the Vietnamese currency, the Dong, the collapse and default of stateowned and sponsored shipbuilder Vinashin etc., it has been all gloom and doom.
However, it is difficult to write the country off. Unlike many places in the West and even in China and other places in Asia like Singapore or Malaysia, Vietnam's demographics is hard to beat. An incredible 65% of more of the population is less than 30 years of age. Many of the younger people who live in the cities of Hanoi and Ho Chih Minh City speak English. Like their counterparts in China and Singapore, education is valued highly. And ... labour costs are unbelievably low, even lower than China.
Hence, for years, I have been waiting for a contrarian indicator to tell us when we can get back to investing in Vietnam again. I believe this indicator has finally appeared …
Fast forward to today, 31st March 2012, nearly 5 years to the day when the article came out, The Economist put out an article which is all gloom on Vietnam - "Vietnam: Hero to Zero", which reflected the general pessimism in the Vietnamese economy:
These days, Hanoians do not have much to celebrate. Not long ago, Vietnam was one of the developing world's pin-ups. Now it is lagging badly.
The most immediate concern is inflation, which last year rose to above 20% for the second time in three years. Vietnam now has Asia's highest inflation rate, a fact that government censors have asked local journalists to stop reporting. Thousands of businesses have gone bankrupt, property prices have collapsed and banks and state-owned enterprises (SOEs) are riddled with bad debts.
This article in The Economist clearly spelt out the problems facing Vietnam right now … inflation, bloated and highly leveraged SOEs etc. They are all well known problems for quite some time already. But due to the volatile and illiquid nature, investing in emerging markets is a little like hockey, at least as how the hockey great Wayne Gretzky put it:
"A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be." - Wayne Gretzky
Vietnam is facing many current (and future) problems, and these problems had been going on for a long time, but that is where the puck is now. Where the puck is going to be looks like a much a better place for Vietnam.
Currently, I buy Vietnamese stocks directly, because this is the way I like to do things. However, for international investors, it may be easier to gain exposure to Vietnam via ETFs like the Market Vectors Vietnam ETF (VNM) listed in NYSE. I know of no other market with such good demographics with stocks trading at such low valuations.
However, be warned, emerging markets are a volatile ride.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
