Is Vietnam poised to be upgraded from a frontier to an emerging market?

Tumbling borrowing costs, stable inflation and soaring GDP growth have left Vietnam on the cusp of an upgrade to emerging market status, with the foundations laid for it to become a potential new ASEAN Tiger economy, RWC Partners has said.
Vietnam is currently rated as a frontier market by index provider MSCI, alongside the likes of Argentina and Sri Lanka.
However, according to James Johnstone, co-manager of the $3.5bn RWC Emerging & Frontier Markets strategy, the region has laid the groundwork to join the likes of India, Indonesia and Korea as an emerging market in the near future.
“Following a credit-fuelled boom and bust which collapsed in 2008, we subsequently saw the roots of recovery in Vietnam thanks to the structural reforms that the government initiated,” Johnstone said.
“Vietnam’s abundant and well-educated workforce was rapidly becoming attractive to investors as China’s manufacturing cost advantage continued to be eroded by higher wages. The foundations for an ASEAN Tiger economy to develop were laid, based on manufacturing, domestic employment and a rising middle-class, allowing it to follow in the footsteps of Singapore, Malaysia and Thailand.”
John Malloy, co-manager of the strategy, said in recent years the economy has recovered and invested across various sectors, including consumer staples, financials, building materials and property.
“Fast forward to 2017 and Vietnam’s GDP growth is over 6.5% and inflation is low at 2.5%. The Vietnamese Dong is stable, banks are starting to lend again and the real estate market has recovered.
Against the background of the government’s privatisation of its stakes in airlines, airports, banks and breweries, there is no doubt that Vietnam has an incredibly bright future.”
Johnstone, Malloy and the team – whose fund has returned 28.7% in the last year, versus the global emerging markets peer group average of 20.6%[1] – hold a number of Vietnamese companies within their portfolio, with an overweight to the region of almost 2% versus the index.
“Vietnam has already learned many lessons from the 2007-08 credit bubble and we consider the country’s current growth to be healthy,” Malloy added.
“We are therefore currently well placed in Vietnam in our portfolios and continue to look for investments to benefit from Vietnam’s emergence as the next potential ASEAN Tiger.”
[1] [1] According to FE analytics data, the RWC Global Emerging Markets R Acc GBP has returned 28.7% over the last year, versus the IA Global Emerging Markets index average return of 20.6%, 20/09/17.