Vietnam’s economic transformation over the last 20 years has been nothing short of stunning. It has led to an emerging and expanding middle class and increasing numbers of high-net-worth individuals, who are now looking for new ways to increase and diversify their assets.
Traditionally, that has meant investing back into their family-run businesses, buying real estate, gold, or parking cash in high-interest bank accounts. The investment opportunities beyond those asset classes have been limited and not grown commensurate with the wealth that has been generated in Vietnam. Restrictions on investing capital outside of Vietnam or accessing global funds have further limited their options.
That’s slowly starting to change. Rapidly growing numbers of Vietnamese are investing in stocks, bonds, and even mutual funds. The recent decline in bank interest rates, from 9% to 5-6%, has been a catalyst for many who seek more attractive returns. In fact, over the past six months, record numbers of investors have opened brokerage accounts to trade stocks, strong evidence of investors’ appetites for equities.
On the fixed-income side, investors are able to access both government and corporate bonds. Government yields are quite low (2-3%), providing a stable investment for the risk-averse. Meanwhile, corporate bonds can yield between 7-10% and typically have maturities of two years or less, resulting in significantly more demand from retail investors. Many of these bonds are issued by well-known and trusted companies, but less-known companies have also gotten into the game. While still a young market, there have been few defaults of note.
Having said that, it is harder for investors to achieve a diversified portfolio of a traditional 60-40 split, as there are no “style boxes” in Vietnam. There are a few “large-cap” companies and hundreds more “small-cap” (really micro-cap) companies, but there are few differences between cap and style. Vietnam’s stock market achieved excellent returns in 2020 and thus far in 2021, and while much of the market has moved together, the outperformers have benefitted from strong earnings, not by size or style. As a market with fast-growing companies, buying “value” is not a focus for most investors in Vietnam.
Until relatively recently, investment firms only managed money for foreign institutional investors who wanted access to Vietnam’s growth story. Firms like VinaCapital – which was one of the first asset managers to offer its investment expertise to retail and HNW investors in the country – are now seeing rising numbers of Vietnamese investors turn to them to invest in equity and fixed-income mutual funds, ETFs, and segregated accounts for HNW investors.
People increasingly understand that the stock market is volatile and that they are better served by hiring professionals to manage their investments and risks, diversify their portfolios, and allow them to focus on their businesses and not spend time trying to manage their investments.
Wealth management is still in its infancy in Vietnam, but the future is incredibly bright. The country’s long-anticipated upgrade to emerging market status is within reach in the next few years, and that will require a number of reforms that will benefit local and foreign investors alike, as well as the broader wealth management industry.
