I believe there are five reasons why Vietnam is a “must buy”. Firstly, a robust economic outlook underpinned by the mobilisation of “hidden wealth”. Vietnam has been unexpectedly volatile since emerging as a new market in 2005-06, but this reflects its raw capitalist energies. Indeed, it manifests the growing pains typical of frontier countries, as greatly aggravated by global crisis, but its long-term promise is undiminished. In our view, the Vietnamese market has stronger growth potential than many others in Asia following the post-stimulus down cycle, with real GDP expected to grow at 6.7 per cent.

This growth has solid foundations, with both exports and domestic markets thriving, but it will get an extra boost from a unique feature of the Vietnamese economy: the expansion of private-sector banks and their accelerating mobilisation of the country’s reserves of hidden wealth. Vietnam is still a cash-based economy and approximately $50 billion - equating to around 50 per cent of GDP - is held outside the financial system in the form of around $10 billion worth of US dollars and $40 billion of gold. Modernising the financial services system and bringing this capital into play will greatly add to asset appreciation and macro growth.

Secondly, foreign assets as a result of gold/dollar reserves. Weaknesses in the Vietnam dong have been a concern but the government has managed them well and - with rival currencies appreciating - it has primed export competitiveness and foreign direct investment. Currency and reserve losses obscure the fact that the country has huge net foreign assets via the gold/dollar hoard, which is further reinforced by minimal sovereign debt. Households and the economy at large are effectively hedged. Vietnam avoids imploding despite periodic financial crises; consumption and investment stay strong, and growth continues.

Thirdly, the continued growth of the manufacturing sector. In the short-to-medium term, manufacturing - which accounts for 22 per cent of GDP - will be key to a sustained economic rebound. Although a trade deficit will linger, we expect it to moderate as exports develop and imports slow down on the back of higher interest rates. 

Fourthly, a burgeoning stock market. Vietnam’s equity market is developing rapidly as a serious financial platform. It now has 620 quoted companies, dozens of new listings in the pipeline and active capital raisings. While equitisation of giant, strategic state owned enterprises has lagged, umpteen small and medium ones have partly taken their place. Major entrepreneurial companies have also migrated to the exchange. Valuations are attractive: 12x for 2010 and 10x for 2011, with about 20 per cent net profit growth in both years.

Fifthly, greater stability entering the market. The financial system and the wider economy in Vietnam are maturing rapidly, driven by the rise of private sector banking. This maturation will have a knock-on effect on the manner in which growth can be maintained. Growth will remain high, but with more stability as monetary/fiscal policy improves, cyclical volatility is smoothed out and capital markets are modernised. 

Vietnam offers one of the strongest and most compelling investment cases for those looking for the diversity and opportunities for income generation that Asia provides. However, as a result of the early development stage of Vietnam’s financial markets there are numerous challenges for individual investors to identify and access the right investment opportunities. Individual investors therefore prefer to invest through funds that are managed by experienced local fund managers. 

Business sectors that correlate with income growth and development of a middle class, demographics and urbanisation, financial development and modernisation and export infrastructure build-up will be attractive in the medium to long term.

Foreign investors view the Vietnamese market as stronger than many others in Asia following the post-stimulus down cycle. In the short-to-medium term, manufacturing - which accounts for 22 per cent of GDP - is expected to be key to a sustained economic rebound. Although a trade deficit will linger, foreign investors expect it to moderate as exports develop and imports slow down on the back of higher interest rates. With rival currencies appreciating it has primed export competitiveness and foreign direct investment. As a result, foreign investors expect growth to continue and accelerate firmly based on both exports and a thriving domestic sector.

There are many areas that the government can improve to support growth. However, in our view there are two key areas. One is to continue the modernisation of the financial sector to create the foundations needed to mobilise the hidden wealth, namely gold and US dollars, and to ensure the efficient allocation of capital, which are essential to increasing productivity. The other key area is to accelerate the equitisation process in order to transfer an increasing part of the State sector to the efficient private sector.

In a market undergoing such rapid development as Vietnam, it is important to be on the ground and to be flexible. At the same time it is crucial to be able to develop a strong local team that can help you manoeuvre through these rapid changes. Last but not least, foreign investors must be ready to be in for the long haul, as “Vietnam is not a country for sprinters, but for marathon runners”.