Vietnam Funds Beat India, China in Attracting Investors

Vietnam-focused stock funds became the only emerging market equity assets in Asia to lure investors every week this year as the nation’s benchmark index rose to an 11-month high, Emerging Portfolio Fund Research said.

Offshore equity funds focused on Vietnam received $91 million in the past 16 weeks, according to data from EPFR. Investors put money into India and China funds in eight of the past 16 weeks. Thailand got inflows for 15 weeks, while investors added money in Indonesia for 13 weeks, seven in Singapore and just two in Taiwan, said Cameron Brandt, the director of research at Cambridge, Massachusetts-based EPFR.

Vietnam’s economy is benefiting as producers shift factories to the Southeast Asian nation to take advantage of wages that are about half of that in China, according to Capital Economics. The VN Index has increased 34 percent this year making it the world’s best performing benchmark after Venezuela.

“There’s some faith that Vietnam is getting its house in order at a time when China’s economic policy is likely to give the Vietnamese outsourcing story a significant boost,” Brandt said in an interview on April 20. That in turn is driving confidence that Vietnam is taking a larger role in global supply chains, said Brandt.

China is focusing more on domestic consumption and recently increased the float on its currency, Brandt said.

The Chinese move “is a signal they’re going to pull in their export sector a bit,” Brandt said by telephone. “That gives Vietnam an opening.”

Emerging-market equity funds tracked by EPFR recorded back- to-back weeks of outflows in the week ending April 18 for the first time since December, on concern Chinese and European growth may slow, according to an April 20 report.

Regional Comparisons

“There has been a cooling of appetite for emerging market assets for the last couple of weeks, mainly because people are kicking the tires on their beginning-of-the-year assumptions for Europe and the U.S. and not arriving at the same degree of rose- colored conclusions,” said Brandt.

Vietnam is set to be the “main beneficiary” of the migration of low-end manufacturing out of China, wrote Gareth Leather, a London-based economist at Capital Economics, in a March 28 note.

“In terms of getting the first rung of the development ladder, the importance of developing a competitive lower-end manufacturing sector for a low-income country cannot be overstated,” wrote Leather. “Although economic growth is likely to slow this year, the bright prospects for its apparel industry are one reason why Vietnam should continue to grow strongly over the medium-term.”

Vietnam’s economy grew 4 percent in the first quarter of this year, after gross domestic product expanded 5.89 percent for all of 2011. The country’s inflation rate in March was 14.15 percent, the seventh straight month the figure has declined since reaching 23.02 percent in August 2011.

The VN Index rose 1 percent, closing at 472.84 on April 17, the highest since May 13.

To contact Bloomberg News staff for this story: Jason Folkmanis in Hanoi at folkmanis@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

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