My guess would be that most readers interested in getting exposure to Vietnam’s stock market would naturally lean to some sort of managed fund, whether that be active or passive. So what would lead an investor to bravely go into the world of frontier stock market investing by picking a bunch of stocks themselves to hold directly on the Vietnam stock market?
PROS AND CONS OF INVESTING IN THE VIETNAM STOCK MARKET DIRECTLY
The main advantage I see of investing in the Vietnam stock market by picking your own stocks to hold directly is the upside potential. Arguably frontier stock markets are less efficient as there is less research on them, so therein lies the opportunity. The problem is it is a lot easier said than done!
Pros of investing in Vietnam stock market directly
- The point I just mentioned above that you are fishing in an area that is less covered generally by analysts applies to small / microcap stocks generally all over the world, but more so to frontier stock markets. With less professionals watching small Vietnam stocks there might be great potential. Think about those who capitalised on the potential of for example markets like South Korea and Taiwan before the mid-1980s. With such dynamic growth potential in emerging economies getting aboard on companies before many of the larger fund managers are getting set can magnify the gains.
- In regard to the point just mentioned, the private investor is better placed to be able to include such a small stock in their portfolio. As you may have noticed with some of the Vietnam fund managers I have covered on this blog, many have several hundreds of millions to manage, and some have in the billions. So the portfolio manager there might think they have come across the best small Vietnam stock they have ever seen, let’s say with a market cap of $200 million. If a billion dollar fund wanted a tiny 2% weight, they would need to buy 10% of that whole company to get set. This may not be realistic for them to spend much more time thinking about it, whereas you can easily buy a stake to make a difference to your own portfolio.
- Smaller Vietnam companies don’t attract the passive ETF flows that flow into larger companies with no consideration to valuations. Therefore picking your own stocks gives you more scope to avoid major companies in the VN Index that might be overvalued.
- Having some stock market exposure diversified in terms of the custody of one’s assets may suit. Generally for most investors it is often better to have your assets simplified and held in your home county and to avoid a frontier market like Vietnam. However taking a very long term view we are continually surprised how different countries evolve over decades. Having a brokerage account in Vietnam could even suit to achieve more diversification, especially if the foreign investor often spent time in Vietnam.
- Owning the stocks yourself means you are not paying management fees to a fund manager. Whilst on this blog I have covered examples of managers adding value on an after-fee basis, it doesn’t change the fact that management fees exist. Also when it comes to fund managers in Vietnam, the market is of yet not as saturated with competition, so as a general rule fees are higher than you see for example with US equity funds. Don’t be surprised if you are effectively paying 4% per annum when you allow for performance fees and other costs. Whilst picking stocks yourself is challenging, avoiding such a fee drag is not a bad head start to tempt you to give it a crack.
- Whilst many potential investors might think there is a huge language barrier in terms of following Vietnam companies and their reporting, there are plenty of companies where the annual reports are in English and easy to access.
Cons of investing in Vietnam stock market directly
- Even in a recent blog post I only briefly touched on the steps involved for foreigners to buy stocks directly in Vietnam, but I admit it is far from a convenient and simple exercise. For those interested, here is a link to my summary here GUIDE FOR FOREIGNERS HOW TO INVEST DIRECTLY IN VIETNAM STOCKS – VIETNAM STOCK MARKET (vietnamesestockmarket.com). Is it really worth pursuing given all the various steps involved?
- Whilst above I suggested generally speaking it might help to be diversified in terms of jurisdictions where your assets are held, frontier markets are not historically as reliable in terms of freely transferring money between regions.
- Even when managing your own portfolio of stocks in your own country, it is not usually a “set and forget” experience. The fundamentals of companies can change rapidly in some cases. Trying to follow another country’s stock market like Vietnam’s if you haven’t already been researching it could be a major time commitment.
- If you live outside of Vietnam and rarely travel there, this compounds the problem I just mentioned. It means it is less likely that you can keep up to date with not only specific company developments, but broader macro trends from a sector and country point of view.
- Just in terms of maintaining another brokerage account in Vietnam this can also chew up your time. Will you receive various updated terms and conditions to keep up to date with all for perhaps another couple of holdings to your portfolio?
- Having a brokerage account in a foreign country also can involve costs that are relatively hidden that you may not consider at first glance. For example, costs with transferring money overseas and FX charges could be a drag on returns. For investors that are very active in their trading this could prove to be quite a deterrent.
- Whilst I did suggest there are plenty of companies in Vietnam where annual reports in English are accessible, it is certainly not the case still for a large group of smaller companies.
- Retail investors have been surging of late in Vietnam but in the large scheme of things the presence of retail investors is tiny. Therefore don’t expect the level of protection that you might come to expect as a smaller investor on developed market stock exchanges. To get some insight as to how the retail investor story in Vietnam is only in its infancy, checkout the below chart that compares things to Taiwan.
- Additional issues with not being “on the ground” and familiar with the country could be in terms of getting comfortable with management and the reporting. Knowing whether you can trust the management of the company you own is harder if you don’t have the network of contacts in that country. In terms of a company’s accounts and reporting, whist one might initially think it is all about figures on a balance sheet it is not always that simple. Accountants can tell you that there if often plenty of subjectivity when it comes to reporting. There are also usually pages and pages of detailed notes attached to a set of accounts. Being less familiar with researching a foreign country’s companies accounts can be challenging.
Is it worth it investing in the Vietnam stock market directly and picking my own stocks?
It does appear here I have written a bit more about the disadvantages of picking your own stocks to invest in Vietnam. Perhaps that tells us something. I would say the key takeaway is that if you are not very passionate about handling your stock market investing yourself then it is not worth the time and hassle to try this. As I have mentioned on this blog, there are some reasonable choices in terms of funds to get exposure to the Vietnam stock market. You can refer back to the following older blog posts for some of the choices out there.
HOW TO INVEST IN THE VIETNAM STOCK MARKET, WHICH FUNDS TO USE?
Here is a list of Vietnam ETFs that trade on the major global stock exchanges.
Vietnam Closed End Funds – CEFs
Here is a list of Vietnam closed end funds (CEFs).
Vietnam funds – open ended
For open ended Vietnam managed funds, click below.
Should I invest directly in the Vietnam stock market?
Even for the experienced investor who is keen to learn about the Vietnam stock market, I would be cautious about diving in directly too quickly. The challenges discussed make it quite questionable whether it is worth the effort, especially if you are only thinking of allocating a few percent to Vietnam stock exposure anyway.
However if one is a regular traveller to Vietnam, experienced and passionate about their stock market investing, and is looking at allocating more than a few percent of your portfolio I wouldn’t rule it out. I would probably take a cautious approach and think about using some fund manager picks at the smaller end as a starting point to research ideas. One could stick with business models that are easier to understand, companies where annual reports in English can be easily accessed, and where you can do some digging to get some comfort about the history of the management team. With potentially higher brokerage / FX costs I would ideally stick to a long time frame of owning the stock.
Good luck if you have gone down this path or thinking about it, and feel free to comment with your experiences / thoughts!
Is Vietnam a good investment?
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