Merrill Lynch, one of the largest investment banks in the U.S. said Vietnam is a buy for international investors because the country is one of the last frontier emerging economies in the region that will demand investor attention over the next decade.
"In the last four years, we have seen rapid changes in both the economy and in government policy that are generating consistent 8 per cent GDP growth," stated a Merrill Lynch research report, which was just released early this week. "Wealth is being created at a turbo-charged rate, and the young, newly affluent population is engaging in a startling wave of (largely un-financed) conspicuous consumption."
It said the factors that make Vietnam attractive include its growing foreign direct investment inflows, the prospects for the country to become a member of the WTO and many opportunities to build infrastructure.
Vietnam's privatization program that is underway is offering great chances for the market to expand over the next five years.
"None of this promise is new, of course. Vietnam looked very promising ten years ago in 1994-1995. But then the Asia Crisis came, investors pulled cash out of high risk and peripheral markets, cash was swept out of the Vietnamese economy and momentum was lost," it said.
Other key arguments for Vietnam, according to Merrill Lynch, are a young literate workforce that is now developing a precocious appetite for conspicuous consumption, a very under developed banking system that is on the cusp of major change and under stated valuations embedded in the balance sheets of many companies which have PE multiples of 8x-10x, EPS growth of 20 per cent-40 per cent and dividend yields range from 3 per cent to 10 per cent.
It noted that in Vietnam, confidence is high at both a corporate as well as individual level, government policy is supportive and the absence of ethnic problems is helping tourism to boom.
"Poverty has been reduced to less than 20 per cent of the population and literacy rates are above 96 per cent. The demographic profile is extremely positive as half of the population is under the age of 25. The manufacturing sector is now growing at close to 11 per cent whilst the services sector is also picking up strongly, driven by areas such as retail and tourism," Merrill Lynch said, adding that from its perspective, these facts are likely the strongest drivers for Vietnam to go forward.
It also pointed out the challenges for foreign investors which will include thin trading volumes of listed equities in the stock market, possibilities of promotion of less reform minded officials in the upcoming party congress in April, a remarkable bull run in the property market, a threat of drought for the agricultural economy and levels of corruption in the country.
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