Vietnam shrugs off plus-one mantle

Rising exports helped to strengthen the Vietnamese economy and despite high inflation and a $10 billion deficit, the country’s wealth is on a roll, says Kevin Snowball of PXP Vietnam.

Snowball’s biggest holding – Vinamilk, a manufacturer of milk-based products – is a play on rising wealth. The firm is one of the largest Vietnamese companies by market cap and offers the country’s largest milk distribution network. Snowball says it is “the stock everybody would buy if they could” but overseas investors face restrictions under foreign ownership rules. The company trades on about nine times 2010 earnings, making it 50% cheaper than the equivalent Chinese dairy producer.

Elsewhere in the fund, Snowball holds rubber manufacturers, firms benefiting indirectly from the export sector, selected banks and plastics producers. He also favours property developers operating at the low end of the market.

On the economic outlook, Snowball is unfazed by Vietnam’s high inflation rate and $10 billion trade deficit. Inflation figures are artificially high because the consumer price index basket is skewed towards food and oil, he says, while the central bank is being given more autonomy on interest rates (this month it hiked rates by one percentage point to 9%). Target credit growth for 2010 is 25%, says Snowball, but with just 10m bank accounts among Vietnam’s 88m population, the impact is not economy-wide.

Machinery imports are likely to slow, meanwhile, reducing the deficit. “As the build-out of the economy advances, there will be less need for machinery imports,” he adds. “Within five years we expect Vietnam not to have a trade deficit at all.”