Mobile World Investment's Grocery Chain Should Support Expected Growth — Market Talk

By Craig Mellow

Vietnam isn't pulling a China. But political infighting will add to its growing pains.

The country of 99 million that emerged as an economic tiger and manufacturing rival to China has rested on placid, if opaque, relations within its Communist-pragmatic power elite. Not so much lately. Vietnam's president and parliamentary speaker have both abruptly resigned over the past two months amid whiffs of impropriety.

President Vo Van Thuong exhibited "shortcomings that negatively affected the reputation of the party and state," an official statement noted after his late-March exit. The VanEck Vietnam exchange-traded fund dropped 15% over the following three weeks.

Investors are wary that Nguyen Phu Trong, head of Vietnam's Communist Party, could follow the example of China's President Xi Jinping, purging rivals to forge a quasi-dictatorship. That's a misread, says Gregory Poling, director of the Southeast Asia program at the Center for Strategic and International Studies, or CSIS. Trong, 80 and reputedly ill, will at best limp to the next Party Congress in 2026, Poling says. The next-generation apparatchiks vying for succession are divided by interest, not ideology. "The issue of communism versus capitalism was settled 15 years ago," he asserts.

Economic growth should return to 6%-plus this year after a dip to 5% in 2023 on slackening global trade. President Joe Biden's visit to Vietnam last autumn, followed by a $250 million investment from U.S. chip champion Nvidia, don't hurt. "Vietnamese talent is exceptionally well suited to the semiconductor and AI sectors," Nvidia CEO Jensen Huang enthused on a Hanoi stopover.

All of that spells bargains in underappreciated Vietnamese stocks, says Vlad Byalik, emerging markets equities portfolio manager at Ariel Investments. "Vietnam's key growth engines are very robust and valuations quite reasonable for select companies," he says.

One top pick is FPT, an information-technology services pioneer that is starting to compete globally with the Indian outsourcers. Its engineers and shares are both cheaper than better-known Bengaluru [India] rivals, Byalik argues. "FPT trades at a 30% to 50% discount to India with much better growth," he says. He is also bullish on Mobile World Investment, a retail chain that is expanding from its base in electronics to groceries. Shares in both companies are up about 40% this year.

Andrew Brudenell, lead frontier markets portfolio manager at Ashmore Group, sees two Vietnams. He is staying away from consumer-facing companies, which are still struggling after last year's slowdown, and focusing on names linked to unabated foreign investment. That means hunting for niche stocks connected to ports or industrial parks. Shares in leading port operator Gemadept have climbed by half over the past year.

Corruption-linked purges at the top do have a "chilling effect" on lower-level Vietnamese officials, which is delaying vital infrastructure improvements, says CSIS' Poling. "Nobody wants to sign a paper to approve a project," he adds.

The political stalemate, which may well last until the Party Congress two years from now, could also delay important regulatory upgrades for banking and real estate — sectors highly prone to crisis and scandal. Fallen property tycoon Truong My Lan was sentenced to death last month after bilking a bank she controlled.

"My primary concern on Vietnam remains lack of visibility into the banks and real estate developers," says Alison Graham, chief investment officer of Voltan Capital Management.

Still, Vietnam's economic miracle remains largely intact for now. "You would rather be Vietnam than any competing economy," Poling says. B

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.