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Postcard from Vietnam
A short while ago, I concluded my first visit to Vietnam. Though I had the benefit of colleagues' prior experiences there, my tour was still an eye-opening one. In most places, I saw abundant and vigorous economic activity, consistent with the prevailing belief that Vietnam's progress in recent years has been substantial. More surprising was the level of development that has been achieved. At least in the metropolitan areas where I travelled, I saw an economic landscape that I would normally equate with a much richer nation. Vietnam's economic output per capita is about $800 per annum, yet my anecdotal experience would suggest that living standards there are on par with countries that are two to three times wealthier. Ho Chi Minh City, formerly known as Saigon, is orderly, clean and buzzing with activity. What left the most remarkable impression on me was the "soft stuff": There was an unmistakable glimmer of determination and pride in the eyes of nearly everyone I encountered. Yet impressive as this was, it was also clear that Vietnam's economic progress rests on relatively fragile underpinnings. Private market activity is a new phenomenon in the country, as the local economy was centrally planned until reforms began in the mid-1980s. Private companies and capital markets institutions are consequently quite young, and thus Vietnam lacks the sort of capital markets heritage that can provide a stable backdrop for equity investors. For example, the Ho Chi Minh Stock Exchange, the largest stock exchange in the country, is only seven years old; just 138 companies were listed there at the end of 2007. Stocks traded on that exchange have plunged this year, not unlike elsewhere in the world. However, the response of regulators was relatively unique: In order to place a "floor" under share values, the exchange recently instituted controls that prevented stock prices from either rising or falling more than 1% per day. A trading band this tight has forcibly arrested the decline in share values, as planned. However, it has also meant that stocks have had little room to trade, and thus liquidity has suffered, hurting sentiment. Two weeks ago, regulators lifted the daily limit to 2% up or down. Stocks still haven't recovered. This story is not an unfamiliar one in Asia: Private market activity is surging ahead, even as the institutional and regulatory framework required to support such growth is only recently established and rickety. My impression is that given time, Vietnam will overcome any such deficiencies. The energy and drive of its people will be its greatest asset in that regard. The essential problem for any prospective investors is that the path ahead is likely to be a very rocky one indeed. Andrew Foster
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