Monday, January 29, 2007 Vol. 9 No. 25

In Today's Letter: Comment: Buy Vietnamese Stocks... After the Next Correction! Offshore: What You Need to Know About Passport Fraud Privacy: Beware of Automatic Computer Updates

Buy Vietnamese Stocks...
After the Next Correction!

Today's comment is by Eric Roseman, our Investment Director and Global Mutual Fund Investor.

Dear A-Letter Reader,

Without a doubt, I'm betting that stocks in Vietnam will rank as one of the best investments over the next decade, similar to Brazil's Bovespa Index and the Russian RTS Index since 1998. An investor in these two markets earned at least 10 to 20 times their money over the last decade. Vietnam should perform similarly, if not better.

Next week, I'll be visiting Vietnam up close and personal for the first time ever. I'm traveling there to check out the local investment scene with our Executive Director, Erika Nolan and Associate Publisher, Shannon Crouch. And the first place I'm heading is right to the Vietnam Stock Exchange (VSE) in Ho Chi Minh City.

In 2006, the VN Index in Ho Chi Minh City rocketed 144% in U.S. dollars and is already up another 35% in 2007. The market is small by global standards with a combined stock-market capitalization of just US$14.6 billion dollars. That's roughly 7% of General Electric's total value on the New York Stock Exchange (NYSE). That brands Vietnamese stocks as small, usually illiquid, with very high risk.

But the country is making big economic strides, and investors have noticed.

In January, Vietnam joined the World Trade Organization or WTO, a milestone for an economy mired in the financial abyss just 15 years ago. 

Foreigners have piled into Vietnamese foreign direct investments (FDI) over the last seven years. In fact, US$9.9 billion was channeled into the domestic economy last year alone. In 2006, the Vietnamese economy grew 8.5%. Vietnamese exports alone soared 20% to more than US$40 billion dollars. By all accounts, this Asian tiger economy now appears to be overheating.

In mid-January, the government announced measures to curb market speculation by capping bank sponsored margin loans while maintaining limits on foreign company ownership to 49%.

At this point, I'd avoid making new commitments in the Vietnamese stock market. Previous attempts at government-sponsored investment curbs in Asia, most recently in Thailand, typically trigger major corrections. That's the case now in Vietnam with officials increasingly desperate to arrest reckless speculation in stocks. It wouldn't surprise me to see stocks fall 15-20% virtually overnight as finance officials continue to dissuade "hot" money from pouring into the market.

But long-term prospects look bright indeed; and Vietnam should eventually comprise a small weighting in every global growth portfolio. As she matures, more foreign money will find a home in Vietnamese stocks, especially as institutions turn to indexing. In December, Vietnam joined the S&P/IFC New Frontiers Index, one of the leading indices created by the World Bank and Standard & Poor's.

In many ways, this country is following China's economic model of laissez-faire market reforms under the guise of political suppression. I'm not sure what to call this brand of capitalism. But in the end, Vietnam is going to make many investors a bundle because it's geographically linked right in the center of Southeast Asia, bridging several important trade routes through Ho Chi Minh City.

Like all emerging markets, Vietnam will experience growing pains en route to economic success. The way to play Vietnam is to avoid the market for now, let the stock-market correct following a torrential rally and then buy into any weakness. That's my strategy for Vietnam in 2007.    

ERIC ROSEMAN, Investment Director

EDITOR'S NOTE: If you want to profit from the coming Vietnamese stock correction, we have two suggestions... First, you can check out Eric Roseman's investment trading service, Global Mutual Fund Investor. Started in 1992, this industry favorite is one of the oldest and best publications on global mutual funds in the world. Click here to hear more about this service.

Or join us in Vietnam this October for our Asian Advantage Tour, and visit this hot investment region for yourself... click here for more information. Call Value Holidays today at 1-800-558-6850 to reserve your spot at our early bird discounted price of US$6,850.

 

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