- Oops!Something went wrong.Please try again later.
At a fraction of the size of China's gross domestic product, Vietnam has been benefiting from the ongoing U.S.-China trade war.
Located just south of China, many companies have started moving manufacturing operations to Vietnam so as to keep their products competitive and ultimately avoid the tariffs imposed by the U.S. on Chinese products.
Despite the growth in investments, Vietnam's economic growth forecasts seem tame. As Asia's 19th-largest economy, it has a lot more room to grow in order to be identified as an emerging market rather than a developing one.
In the first quarter alone, Vietnam increased its exports to the U.S. by 40%, while China's exports have declined 14% over the same period.
Vietnam expects its economy to grow another 6.8% this year, while the International Monetary Fund forecasted growth of 6.5%--down from 7.1% in 2018.
In addition, Vietnam reported $63.5 billion in foreign reserves at the end of 2018, compared to $49.5 billion the previous year. The country's currency has fallen 2.2% against the U.S. dollar over the past several years.
Meanwhile, the Vietnam Ho Chi Minh Stock Index, as measured by the VanEck Vectors Vietnam (VNM) exchange-traded fund, has risen 10.3% so far this year. The frontier stock market is now valued richly when compared to the emerging market indexes. Vietnam's stock market now trades at an average price-earnings ratio of 22.6, while the MSCI Emerging Markets stands at 13.25 times.
Vietnam's debt-to-GDP ratio has improved in recent years, but the IMF said in July it is expected to decline in 2020.
"Despite rising trade tensions and volatility in emerging economies throughout 2018, Vietnam's economy saw broad-based growth and low inflation. Government spending and debt remained in check and bank capital rules were strengthened. Current economic risks relate to geopolitics, trade policy uncertainty and domestic reform implementation. Looking ahead to the longer term, Vietnam will face risks related to aging, climate change and digitalization."
Overall, Vietnam seems to be in a strong position to continue its growth and benefit from the U.S.-China trade war. The country has already reaped rewards and has grown its reserves to levels not seen in years. Furthermore, any internal political turmoil is far out of sight at this time, having a strong Communist Party backing of the country's current leadership. As a result, Vietnam can only outperform current expectations.
Disclosure: No positions.
Read more here:
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
This article first appeared on GuruFocus.