As I recover from overindulging from various new year celebrations (yes I probably need almost 2 months for that), I thought I would try and collect my thoughts about the year of the tiger.
It made me think about the theme of tiger economies in Asia in the 1980s. I shall explore what it meant, what countries it referred to, and therefore is Vietnam evolving into a tiger economy as we go through 2022?
To answer that question, it is worth keeping in mind some of the themes of the development of these Asian tigers from the 1960s or so, then thinking whether Vietnam is experiencing something similar right now.
WHY ARE THEY CALLED ASIAN TIGER ECONOMIES?
A group of economies in the 1960s from East Asia emerged rapidly by embracing export led economic models. They achieved powerful levels of economic growth for decades which saw the living standards of the population improve dramatically.
WHO WERE THE FOUR ASIAN TIGER ECONOMIES AND EAST ASIAN MIRCALE ECONOMIES?
Hong Kong, Singapore, South Korea and Taiwan are the four economies referred to as the Asian tigers.
The below chart is how I prefer to look at what many refer to as the East Asian miracle economies. It expresses the GDP per person, but in the context of how this measure has closed the gap on economies that were way more developed in comparison from the starting point below in 1970. The chart is expressed as a % of US GDP per person in US. It also shows Japan, of which interestingly the Asian tiger economies used as an export led model to emulate.
CHARACTERISTICS OF THE ASIAN TIGERS AND THEIR EAST ASIAN MIRCALE ECONOMIES
- Export led
- Trade surpluses
- Strong overall economic growth (long periods averaging circa 7%)
- Strategically located for trade
- Cheap and skilled workforce
- Stable political environment, more authoritarian than democratic initially
- Market economy approach
- Population embracing hard work and education, including technology
- Focus on improving infrastructure
- Focus on attracting FDI: improve ease of doing business, tax incentives and capital market’s maturity, property rights, laws etc
- Capitalizing on improving world peace, globalization, open borders to export to more developed countries
IS VIETNAM A TIGER ECONOMY?
To attempt to answer this question, I wanted to consider how many of the above characteristics might also be evident in today’s Vietnam.
I shall try as much as possible to also consider the risks that Vietnam could struggle to capture the benefits of these characteristics in their journey from here.
Export led – There is not too much question about Vietnam being a strong export story at the moment. However a large part of this is still reliant on reasonable growth in developed nations of which the outlook is increasingly questionable.
Trade surpluses – Unsurprisingly given my comments just above with the export story, the trend of trade surpluses has been in place for many years in Vietnam. Just after the global financial crisis in 2008 however this was challenged. As exports weakened, they experienced still relatively high imports as a bit of a legacy to the “hot money” that poured in a relatively speculative manner in the years prior. They must watch that such speculative excesses do not get out of hand again like that.
Strong overall economic growth – Vietnam has been averaging economic growth of not far off 7% or so in the last decade (*if we were to exclude the last couple of years affected by the pandemic).
Strategically located – Like the Asian tiger economies of decades ago Vietnam is geographically positioned well from a trade point of view. From a geopolitical perspective though they are very close to the South China Sea which is always very topical in the news.
Cheap and skilled workforce – Vietnam would not have achieved the economic growth success to date over the last few decades if it wasn’t for the fact their workforce was skilled and economically attractive to set up manufacturing bases. They also boast very favourable age demographics in this regard.
Stable political environment – The population has enjoyed a relatively peaceful internal environment as the strong economic growth has managed to see most economic classes enjoy significant improvements in the standard of living. The pandemic however presents challenges like in the rest of the world to ensure any wealth inequality issues do not worsen.
Market economy approach – Whilst the government might be described by some as being more autocratic in nature, business practices and beliefs embrace the free market concepts. The people believe that delivers the best outcome for all on average. This was a feature particularly in the earlier stages of the Asian tiger economies emergence.
Desire to work and learn – The huge improvement in Vietnam’s literacy rate in recent decades, along with very high levels of growth in the population learning English are some examples of their willingness to embrace education. They are renowned as hard working people in general, and also show signs of being tech savvy. There are some impressive large tech businesses in the country, and the government has prioritised steps to improve digital literacy and promote tech stat ups, embrace fintech etc. This is an important step to ensure longer term growth continues if they were to be challenged in the area of lower cost manufacturing exports, which is a risk.
Focus on improving infrastructure – There are a lot of plans to improve infrastructure in Vietnam for example with airports, trains etc which has the potential to be a key contributor to economic growth going forward. Having said that some plans can take time to execute (the pandemic doesn’t help!), for example I am personally still keen to see the metro system around Ben Thanh Market, I have observed cranes / construction around the area for a long time now 😊.
Focus on attracting FDI – It has been quite a positive trend in attracting FDI for Vietnam over the last decade although admittedly there was plenty of volatility around and just after the global financial crisis in 2008.
Some would say there is plenty of room for improvement still though in areas such as rule of law, stamping out any potential corruption / fraud, property rights etc. It appears though they are improving in such areas and confidence is growing.
The stock market is still considered “frontier” by the major indices providers, but I feel this may change soon. It has been a good few years overall in terms of liquidity on the stock market, and steps to improve overall stock market systems and infrastructure.
Capitalising on improving world peace – This might be the most challenging aspect for Vietnam to draw comparisons of the experience of Asian tiger economies decades ago. Nowadays it feels like the trend towards globalization / open borders, a more peaceful world environment that was seen in the 1980s/90s might be moving the opposite way!
VIETNAM RETAIL INVESTORS BOOM VS TAIWAN 1980s
In terms of developing sound capital markets infrastructure, the retail investor can play a pivotal role.
Below is a chart that fascinates me from that perspective when thinking about the potential of Vietnam to emulate the older Tiger Asian economic experience. What might that mean for the Vietnam stock market?
WHAT DOES F0 INVESTORS MEAN IN THE VIETNAM STOCK MARKET?
The last couple of years has seen the small Vietnam retail investor show massive enthusiasm to start their stock market journey with a rush to open up stock broking accounts. You can read about my thoughts on this trend in the blog post below:
Are you one of these retail investors in Vietnam that has opened a stock broking account, would be interested in knowing about the experiences?
Is Vietnam a good investment?
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