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Last Call For Vietnam: Buy Now Or Be Sorry

 March 01, 2012 01:47 PM
 


Back in December 2011, my colleague, Karim Rahemtulla, put Vietnam on your radar. He pegged it as one of the "Top Emerging Markets for 2012." Which has proven to be a prescient call.

Indeed, while other frontier markets have struggled out of the gates in 2012 (the MSCI Frontier Markets index is only up 2.8% compared to an 11% rise for the MSCI All-Country World Index), Vietnam ranks as a notable exception.

In fact, it's one of the best performing stock markets in the world right now, with the Ho Chi Minh Stock index up 20.1% so far this year.

The good news? It's not too late to capitalize on this opportunity. And here's why you should…

[Related -Intel Corporation (INTC): An 18.1% Yield From Intel?]

Think Lower Risk, Not Higher

If Vietnam isn't the first country that comes to mind when you think about investing in international markets, you're not alone.

Most investors ignore it – and similar developing countries – because they're labeled as frontier or "pre-emerging" markets. Such a classification is typically associated with higher risk.

I'll be the first to concede that frontier markets typically do suffer from political instability, poor regulation, limited liquidity, volatile currency markets and weak financial reporting.

But over time these markets change, becoming more liquid and less risky. And many investors don't realize that if we add exposure to frontier markets to our portfolio before these changes firmly take root, we benefit.

[Related -Intel Corporation (INTC) and 5 Other Stocks That Could Pop on Earnings This Week]

You see, frontier markets have a low correlation with developed markets, and thus serve as a portfolio diversifier. Meaning they end up reducing the overall risk of our portfolio, not increasing it.

Of course, my bold headline to buy Vietnam before it's too late isn't simply about adding some extra diversification to our portfolio. It's about the fundamentals, too.

All the Economics Add Up

As Karim noted in his original analysis, Vietnam is one of the lowest-cost centers for Asian manufacturing. And that remains true today. Minimum salaries in Vietnam check-in at about $85 per month – compared to $173 in China – according to the United Nations' International Labour Organization.

As a result, it's inevitable that Vietnam is going to land more and more manufacturing jobs from China and U.S. companies like Intel Corp. (Nasdaq: INTC).

The country also benefits from a young population, with almost 50% of Vietnam's 87 million people under the age of 25.


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