Good Morning Vietnam Agriculture Opportunities

Submitted by Wall St. Daily as part of our contributors program

Good Morning Vietnam Agriculture Opportunities

By Shelley Goldberg, Commodity Strategist

Last month, a fellow Wall Street Daily writer touted the plentiful opportunities in India and China – two BRIC countries notable as emerging markets.

But BRIC is so 10 years ago…

In 2009, CIVETS – Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa – was the new scorching-hot trend.

Fast forward to today, and not all of the CIVETS countries are as appealing as they were six years ago.

Vietnam continues to shine, however. In fact, Vietnam is the No. 2 most-watched country by multinational investors, according to The Wall Street Journal’s Frontiers blog and FSG’s Frontier Market Sentiment Index!

And now is the perfect time to strike!

It’s Not Just Wet Rice

The National Financial Supervisory Commission forecasts that Vietnam’s economic growth will reach an annual rate of 5.4% in the first quarter, with a full-year target of 6.2%.

The commission also predicts that the average annual core inflation will be 3% this year due to low oil prices and inflation declining in recent years.

The country has benefited from lower wages than other Association of Southeast Asian Nations (ASEAN) members, and its demographics have been more promising with relatively high literacy rates – producing a workforce with the drive and skills for factory labor.

The country is well known for building its civilization on thousands of years of wet rice farming. But now, it’s a major producer and exporter of many other agriculture commodities.

Vietnam has 10.3 million hectors of arable land, much of which is devoted to profitable agricultural exports, representing $30 billion per annum, or 20% of its total exports.

In fact, average Vietnam agriculture exports to the United States from 2011 through 2013 were $1.17 billion, which is close to double that of Japan at $521 million, according to the U.S. Department of Agriculture.

Trade growth for Vietnam has been explosive, too.

After Vietnam joined ASEAN in 1995, its agricultural trade within the 10-member regional trade bloc significantly expanded.

The country has also been benefiting from the renormalization of trade with the United States since 2001. And World Trade Organization accession in 2007 provided a major catalyst for growth and integration.

Subsequent preferential trade agreements have led to tariff reductions that have only recently begun to take effect.

Today, Vietnam’s agricultural trade is still led by its ASEAN partners; however, China is now Vietnam’s largest trade partner. And the United States is a close second and the largest source of imports.

The Trans-Pacific Partnership agreement is viewed as important to the long-term economic strategy for Vietnam, which could help secure markets abroad, facilitate the flow of foreign investment, and reduce tariffs on imported inputs needed for production of export commodities, such as cotton and hides used for textiles and footwear.

Regarding meats, Vietnam’s hog industry ranks 10^th globally, and production is growing to satisfy rising pork demand. Hog farming is also changing from small backyard operations, using locally procured feeds, to full-time farms raising hogs bred for more efficient meat production and using formula feeds.

Vietnamese demand for chicken is also rising, with growing production of corn and cassava used as feedstuff.

The private equity route is definitely the way into this fresh, new market.

The Best and the Brightest

According to a paper co-authored by Corr Analytics and Vietnam Report, the government’s rapid privatization of major state-owned enterprises, initiated last year, is having a major effect on agriculture.

The government is planning to withdraw $151 million from 167 businesses owned by the Ministry of Agriculture and Rural Development.

Should you wish to invest in publicly listed names, known as joint-stock companies, there are many to choose from. The two stock exchanges in Vietnam are the Ho Chi Minh Stock Exchange and the Hanoi Stock Exchange.

First, you will need to obtain a trading code at Vietnam Securities Depository Centre and open a “capital contribution” bank account with your broker.

Some enticing agriculture names are An Phu Irradiation (APC), Vietnam Dairy Products (VNM), AgriBank Securities (AGR), Agriculture Bank Insurance (ABI), Gia Lai Cane Sugar Thermoelectricity (SEC), and An Giang Fisheries Import & Export (AGF).

Mergers and acquisitions, as well as joint ventures, are also picking up.

One example is Vietnamese FPT Telecom (FPT) and Japanese Fujitsu’s (FJTSY) agreement to deploy Fujitsu’s Akisai cloud-based computing technology to support agriculture management through 2016.

A simpler approach is to invest in an index, such as the Ho Chi Minh Stock Index (VNINDEX: IND), or the Market Vectors Vietnam Index (VNM). However, these are broad-based, multi-sector indices.

Good investing,

Shelley Goldberg

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By Shelley Goldberg