Think of emerging markets and some people may immediately think of China. and although many experts believe the Chinese economy will grow further still, I think we should also look further afield and consider other emerging market areas. One country that has caught my eye is Vietnam.
The Vietnamese economy has been growing rapidly over the last few years, and a number of multinational organisations have recently established manufacturing operations there. According to a recent CNBC news article, Vietnam is likely to be Asia’s top performing economy of 2020 – beating even China!
The country also has trading relations with both China and the West, and talk recently has been of trying to increase these ties, especially with the West. The Vietnamese government are said to be targeting annual GDP growth of at least 6.5% per year for the next few years.
Government elections have recently been held, and the existing Communist Party leader has been re-elected – a man who appears to have a more global outlook in terms of trade. Therefore I hope this will help to continue to bring stability to the country.
One way of getting in on any future potential growth could be by investing in the close-ended fund of Vietnam Enterprise Investments Limited (LSE:VEIL) by Dragon Capital. This fund invests in a number of both listed and pre-IPO companies in Vietnam, with sectors including banks and real estate.
I believe it offers a chance to invest in an emerging market with a lot of potential. I am not the only one who thinks this way: some of the significant shareholders in the fund include the Bill and Melinda Gates Foundation and the City of London Investment Management Company, along with a number of other trusts and funds.
It has recently been trading with a discount to the net asset value, while the fund can also be held as part of a Stocks and Shares ISA.
What are the potential risks and downsides?
Investing in emerging markets can sometimes be a bit of a roller-coaster, and although the Vietnamese government is more stable than some in the region, things can sometimes change. However, the potential rewards could be great if the recent economic growth were to continue.
I am also not thrilled about the 2% management fee that is charged, which is fairly high compared to other trusts and funds. However, this may be in part a result of not having a great deal of competition with similar funds (at least those available on the FTSE) that are invested wholly in the region.
Taking all into consideration, I think that if one is able to accept a certain amount of risk versus potential reward that exists with emerging markets, then I do believe this fund makes for a good addition as a small part of my diverse portfolio.
