Start 2014 With An Opportunity In Vietnam

| About: Vinacapital Vietnam (VCVOF)
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Do you remember Marc Faber recommending Vietnamese stocks in 2014 (NYSEARCA:VNM)? To expand further on this, I wanted to make a case on why to invest in Vietnamese stocks at this particular moment.

First off, the savings rate in Vietnam is extremely high. We have 28% domestic savings rates and that's always a sign of a great economy. You can't produce and invest without savings.

Second, the inflation rate has come down from 20% in the past to 6% now. This will be great going forward as the dong (Vietnamese currency) will be stable going forward.

Chart 1: Vietnam CPI

To point to a correlation, we know that the currency valuation is correlated to the trade deficit of a country and indeed, when we look at the trade deficit in Vietnam, we can see that Vietnam recently went into a surplus. This also explains why the dong is so strong lately and why the inflation rate is coming down.

Chart 2: Trade Deficit Vietnam

To add to the good news, we see more than 5% growth in GDP per annum, which is much more than the 2% growth in the U.S. This will be supportive for higher stock prices in Vietnam. The valuation on Vietnamese stocks is very inexpensive. Currently we have a P/E ratio of only 12.5 compared to 22 in the U.S. One third of the Vietnamese stocks are trading below book value and at P/E ratios of only 6. As a result of these cheap valuations, we already see that foreign direct investment in Vietnam is surging.

Chart 3: Foreign Direct Investment Vietnam

To close off, I need to say that Vietnam has an ever increasing amount of foreign exchange reserves since the low in 2010, which is a sign that their currency is going to appreciate further. What isn't there good about an appreciating stock market on an appreciating currency? I am going to start off the year 2014 with some investments in Vinacapital Vietnam Opportunity Fund (OTCPK:VCVOF). You can't go wrong with the investment advice from Marc Faber.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.