Frontier, emerging markets take centre stage at Vietnam Investment Forum

The universal problems are increasing geopolitical tensions and social strive, rising wealth and income inequality, potential health care issues like pandemics and “superbugs”, and food shortages.

The problems of the west include excessive debt, artificially low interest rates lack of savings, unfunded liabilities, poor demographics, declining wages in real terms and declining standards of living, genetically modified food, and dysfunctional democracies and too much government interventions.

The problems of emerging markets are excessive debt growth in recent years, high economic dependence on China, declining growth rates, poverty and lack of education, lack of water, interventions by foreign powers, and rising nationalism.

My conclusions: All asset markets are inflated by expansionary monetary policies and excessive credit, and asset deflation in future is a certainty. Relative value may exist in selected markets and assets, and wealth inequality will lead to a changing political landscape.

Vietnam is already a destination for foreign capital flows.

As for foreign direct investment, FDI commitments to Vietnam remained unchanged. The MPI announced registered FDI for January – May of 2014 reached $5.51 billion, equivalent to 65.7 per cent of 2013, whereas disbursed FDI reached $4.6 billion, up 0.4 per cent. Processing and manufacturing continued to attract the most FDI with $3.92 billion recorded, followed by construction and real estate with $463 million and $399 million, respectively.

As for portfolio investment, local participants in the Vietnamese equity markets drove the sell-off. Foreign investors have been net buyers on the Ho Chi Minh Stock Exchange every day since April 18, the longest stretch of purchases since January, as valuations declined to a four-month low. They added about $108 million to their holdings even as the benchmark VN Index slumped 2.2 percent.

The index has dropped 9 per cent from this year’s peak of 608 on March 24. The gauge of Vietnam’s $52 billion stock market has a price-to-earnings ratio of 13.1, the lowest level on a weekly basis since January, as shown by data compiled by Bloomberg. That compares with a multiple of 14.8 for the MSCI Southeast Asia Index.

As of the week ending Tuesday 27 May, liquidity increased 85 per cent in volume (100 million shares per day, excluding put-through), and down 13.3 per cent in value ($62 million per day) comparing to the beginning of May.

The VN Index is expected to reach 640 for this year, up 10 per cent from February, and 27 per cent from December.

In an encouraging development for FDI inflows, the head of Samsung Global Strategy Group has announced that his company would make multi-billion dollar investments in Vietnam in areas other than cell phones and electronic equipment. It would diversify into the construction of thermal power plants, shipyards, airports, and petrochemical factories. Samsung was committed to making Vietnam its production hub in Asia with the capacity to supply half of global sales in cell phones.