Vietnam and the New Frontier

I have been interested in and invested in Vietnam since the fall of 2006. I bought the Vietnam Opportunity Fund [VOF.L] at $2.48, sold half of it at $4.73 a few months later and still have some shares now trading at $1.99.

The fund hovered along at down a little for the year before starting to swoon about a month ago, consistent with the VN Index, which is down 59% YTD.

The GDP has been en fuego, but less than in China, which has proven too hot to handle as now inflation appears to be running at 25-30%.

As I wrote several times along the way about Vietnam, a destination like this is going to have huge booms and huge busts along the way.

The story on the ground, which of course includes the inflation right here right now, is still the same. An average age in the early 20's and a 70 million population in a country that will modernize and become more economically relevant.

I don't discount the luck factor in leaving me with just having the house's money left in the position.

There will soon be frontier market ETFs coming. It can be easy to forget but these things are not one-way trades. When the downturns come they are big and can last for a while.

None of  this means the asset class lacks viability, but hopefully it makes the point for why I favor moderation in this sorts of themes. After selling down the position I was left with about a 1% portfolio weighting. If the fund had doubled again over the rest of 2007 it would have added 100 basis points to the overall portfolio, which becomes a meaningful number when your benchmark is up mid single digits.

Obviously the fund did not double again. In dropping by 60% since that sale it has created a very small drag on the portfolio for the literal handful of clients that own it (I own it personally as well).

Vietnam going up a lot did not make the thesis right. Now that it is down a lot the thesis is not wrong. Committing to a frontier destination should be thought of as a very long-term proposition that will not be right for everyone.

When the ETFs come out, you need to really look in the mirror and know what you can withstand before buying one of them.

Comments

[SatayBoy:]

Come on. Vietnam is facing a 30% devaluation risk of the dong...risking an IMF rescue package and you advocate Vietnam?

2008 Jun 10 07:45 PM

[Roger Nusbaum:]

you apparently skimmed the article. i don't "advocate" anything. the point is that the action exhibited in Vietnam is not unique to frontier markets. Frontier markets will soon be much easier to access but will still be prone to big big swings.

perhaps you should read the second half of the post.

2008 Jun 10 08:55 PM

[Bust 6576:]

Satayboy is right. You should rewrite the post - after you have your Kopi! Nobody plays ball in a mine field. Rewrite the whole post - not just half of it!

2008 Jun 11 09:05 AM

[truckerblues:]

Obviously, Roger "Jane Fonda" Nusbaum, you have forgotten the
56,998 lives that were lost in Viet Nam.

2008 Jun 11 10:18 AM

[Roger Nusbaum:]

so are you saying you would not invest in Japan, Italy, Germany, Russia, the UK, France and southern US states (or if you live in the south, northern US states)?

2008 Jun 11 10:38 AM

[Walter Morton:]

There has been some coverage in the WSJ about Vietnam over the last 18 months. Vietnam is now where the rest of Asia goes for cheap labor and rapidly modernizing agriculture (food production.) It's definitely a hot economy and will have ups and downs. I do not see a lot of win-win investments. Vietnam has also been called "the poor man's Hong Kong" with some aspects of openess to trade and rapid development. I do not own any shares in any Vietnamese enterprise but am looking at businesses that are taking advantage of conditions there, i.e. this kind of thing:
www.kepcorp.com/press/...

2008 Jun 11 10:47 AM

[hswalj:]

My 28 year old son (from Tennessee) has lived in Vietnam for 3 years. I believe it offers a huge opportunity although one can certainly lose money. The war is not part of the consciousness there any more than Germany or Japan is to us.

2008 Jun 11 11:16 AM

[Sean Maher:]

I agree that Vietnam is a great LT story; I have written about the Vietnamese (and indeed Chinese) stockmarket slump extensively on my investing blog deadcatsbouncing.blogs.../; both countries have negative real interest rates in an environment of spiralling inflation (25% in Vietnam and almost 9% in China) but both markets now look reasonable LT value, currency risk is the key unknowable, China might revalue 10-15% at any time to control inflation while the Dong looks ripe for a slump in value.

2008 Jun 11 02:19 PM

[truckerblues:]

I guess what I'm saying is the reason America's economy is in a
shambles is because us, the americans, always seem to invest in our former enemies rather than in America.

2008 Jun 12 10:38 AM

[milloy:]

That's the reason our economy is in shambles? I can think of a few others. So, trucker "benedict arnold" blues, you have no exposure to Japan, Germany, UK et al. in your portfolio? is indirect exposure through multinationals acceptable, or am I traitor because I own GE?

2008 Jun 13 01:28 PM

[milloy:]

Enter your comment hereThat's the reason our economy is in shambles? I can think of a few others. So, trucker "benedict arnold" blues, you have no exposure to Japan, Germany, UK et al. in your portfolio? is indirect exposure through multinationals acceptable, or am I traitor because I own GE?

2008 Jun 13 01:29 PM

[milloy:]

That's the reason our economy is in shambles? I can think of a few others. So, trucker "benedict arnold" blues, you have no exposure to Japan, Germany, UK et al. in your portfolio? is indirect exposure through multinationals acceptable, or am I traitor because I own GE?

2008 Jun 13 01:29 PM