I’m writing this from the departure lounge of the Ho Chi Minh City airport, once known as the Tan Son Nhut airbase outside Saigon. After 10 days of traveling in Southeast Asia – this time for vacation, rather than investor meetings – I won’t bore you with statistics or quotes from finance ministers, but I do want to share some thoughts about what the global economy has and hasn’t (yet) brought about.
For example, Saigon boasts a stately building complete with pillars and a sign out front announcing the “Ho Chi Minh Stock Exchange.” Maybe you need to be a child of the Sixties to appreciate the irony, but I can’t get over Uncle Ho’s name on a citadel of capitalism. Capitalism has come to Vietnam, but it came from a direction that none of us could have imagined 40 years ago.
After an initial post-war romance with collective farms and central planning, Vietnam’s communist authorities began introducing market-based reforms some 25 years ago, opened the borders to international trade and joined the World Trade Organization in 2007. Vietnam is the world’s second-largest exporter of both rice and coffee, and economic growth has averaged 7% annually over the past decade. World-class resorts are starting to crowd China Beach and homemade tycoons are bidding up the price of luxury housing and shopping in chic European boutiques. I also noticed crates of California-grown tomatoes being carried into an Italian-named pizza parlor.
If only it were that easy. Year to date, the Ho Chi Minh Stock Index has declined 5.60%.* Meanwhile, inflation in May reached an annual rate of almost 20%, which is among the worst in the emerging markets. The government began tightening policy early this year, but even at 14%, policy interest rates remain accommodative. Growth and rising living standards generate demand for more of the same, but growth that’s unsustainable won’t be sustained. As elsewhere, the question is how soft the landing will be.
The lesson here is that growth in the emerging markets creates enormous opportunities, but profiting from those opportunities entails risk. As always, enthusiasm must be tempered with thought and prudence.
* The Ho Chi Minh Stock Index returned -5.60% from 12/31/2010 to 6/2/2011 with dividends reinvested. The Index is unmanaged. The Index cannot be purchased directly by investors.
Investing in foreign securities entails special risks (such as currency fluctuations and political uncertainties) and may have higher expenses and volatility. These risks may be enhanced when investing in emerging markets.