TOP PICK IN THE FRONTIER MARKETS

Top Pick in the Frontier Markets

HSBC bank says Vietnam is its “most preferred” frontier market. A frontier market is one that is more developed than least developed countries, but too small, risky, or illiquid to be classified as an “emerging market” economy.

HSBC says the Southeast Asian nation is “more investable than many think.” Its positive factors including an accelerating inflow of foreign investment, a government focus on infrastructure development, structurally increasing purchasing power, and strengthening banks.

“Profitability, attractive valuations, strong balance sheets and market reforms point to the likelihood of a multi-year bull run.” Inflation is low, the currency is stable and corporate earnings are healthy.

HSBC disagrees with the common perception that Vietnam’s equity market is too small, pointing out that it now has 11 stocks with a market cap of more than $5 billion. It had only two in 2015. Trading now runs close to $1 billion a day.

The government has passed new laws that should reduce restrictions on foreign investors and put Vietnam in line for upgrading to emerging-market status. Covered warrants and other developments are helping overseas investors gain exposure to companies at their foreign ownership limits.

The potential for elevation from frontier to emerging-market class will make Vietnam much more of an investment play for international funds. Saudi Arabia was so reclassified early in 2018. Investors began pricing in that upgrade well ahead of the announcement.

Vietnam’s stockmarket is on the cusp of breaking out to new all-time highs. It has been consolidating below its 2018 and 2007 peaks for the last couple of months and retested the highs a few days ago.

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