A combination of rising Chinese labour costs and latterly, the urge to sidestep President Trump’s trade tariffs, means that there has been no let-up in the steady stream of manufacturers looking to shift production from China to lower-cost Asian countries. Anecdotal reports suggest many companies favour Vietnam, which has a particularly strong track record in electronics manufacturing.
Vietnam’s transformation since the Vietnamese government introduced the Doi Moi economic reforms in the late 1980s to create a ‘socialist-orientated market economy’, has been nothing short of extraordinary.
For several years now, Vietnam has been among the world’s fastest-growing economies. GDP (gross domestic product) growth reached a 10-year high of 7.1% in 2018, and averaged 6.6% per annum during the 2014-2018 period1 and the country has continued to enjoy strong economic growth.
While Vietnam’s export growth has outstripped the emerging-market average for several years, the domestic economy is in pretty good shape. Consumption accounts for approximately 70% of GDP thanks partly to the growth of the middle-class. Vietnam now boasts 30 million people earning over US$715 per month and has 22,000 millionaires. Some forecasts predict that the middle class could represent 50% of the population by 2025 and on-the-ground evidence suggests some companies servicing Vietnam’s burgeoning middle class have outstanding – and arguably underappreciated – growth prospects.
Naomi Waistell, portfolio manager, emerging and Asian equities, Newton Investment Management.
1 CEIC Data.