After more than two years of negotiations, the European Union (EU) and Vietnam reached an agreement in principle for a new free trade deal.1 Our team believes this deal marks an important milestone not only for Vietnam, but sets an important precedent for other countries in Southeast Asia, a region of particular interest to us.
Vietnam has experienced a drop in exports this year—which some have said may have contributed to a devaluation of its currency, the dong, for the third time this year in August. With that backdrop, this trade deal with the EU could prove even more important for Vietnam.
越南今年经历了一次出口下滑 — 有人认为此次下滑可能导致了其货币越南盾今年8月第三次贬值。在这样的背景下，这项与欧盟的贸易协定对越南的意义就更显突出。
The new trade agreement means Vietnam's exports could see a boost amid broader access to the EU—whose member-countries collectively represent one of the largest economies in the world.2 Vietnam's key exports to the EU include telephones and parts, electronic products, footwear, textiles and clothing, coffee, rice, seafood and furniture, while the EU exports primarily high-tech products including electrical machinery and equipment, aircraft, vehicles and pharmaceutical products to Vietnam.3
I think part of Vietnam's impetus for this deal is to lessen the country's dependence on China, its largest trading partner. There have been some tensions recently between the two countries over drilling rights in waters claimed by both countries as their exclusive territory. Additionally, the recent weakening of China's yuan (devalued in August) would make Vietnam's exports even less competitive and could further worsen its trade balance. We see Vietnam's subsequent currency devaluation as a necessary measure in light of the fact that the dong had been much stronger than some other currencies in the region.
我认为越南努力促成此协定的部分动机是为减少对其最大贸易伙伴 — 中国的依赖。两国近来在特定海域的钻探权问题上关系紧张，双方都声称这些海域为自己的专属领地。此外，人民币疲软（8月贬值）会削弱越南的出口竞争力，令其贸易收支进一步恶化。鉴于越南盾远比该地区其它一些货币坚挺，我们将越南随之而来的货币贬值视为是必要举措。
Other important aspects of the trade deal may be of interest to international investors. Besides eliminating tariffs, Vietnam will also remove almost all of its export duties. Vietnam is not only focused on traditional export drivers such as commodities; it has been opening up new market access opportunities in services and investments.
In general, political progress—or the lack thereof—can be a key factor in unlocking economic potential in Asia. While Vietnam remains a Communist-ruled country, its leaders seem to be embracing capitalism, at least in some respects. Vietnam's recent removal of limits on foreign investment in many areas (which had been capped at 49% of a listed company) looks encouraging to us. Its government has also been focused on developing a strong technology sector in particular, offering financial incentives and tax breaks.
整体而言，政治进展 — 或缺乏进展— 可能是释放亚洲经济潜力的关键因素。尽管越南是一个共产党执政的国家，但其领导人似乎至少在某些方面更加青睐资本主义。该国最近在多个领域取消了外来投资限制（此前曾限制外资在上市公司的持股比例不得超过49%），令我们备受鼓舞。越南政府同时还着力推动科技业的强大，为此实行了财政激励和税务减免政策。
Vietnam is clearly attracting investor interest. While its market is still relatively small, it may come as a surprise that Vietnam was second only to China as the most-popular investment destination in the Asia-Pacific region, as of 2014.4 Bordering China, the country has strategic importance in the region, and offers a number of positives that have attracted this interest, including low-cost labor, strong domestic growth potential and a youthful demographic. Chinese firms are already active investors in Vietnam, taking advantage of significantly lower wage rates in comparison with Southern China.
As investors in Vietnamese stocks, the primary constraints we face are liquidity and limited choices in which to invest. But we are hopeful that soon will change. Vietnam has had a fast-growing economy, and we have found good companies there, including some that are state-owned. More importantly, we have also found companies with attractive valuations in Vietnam. Currently, state-owned enterprises account for 40% of Vietnam's gross domestic product (GDP),5 but authorities have affirmed a commitment to a more modern and open economy, which we hope will lead to more privatization.
Changes and Challenges
The middle class has been growing in Vietnam and people have also been trading in bicycles for motorcycles, scooters and automobiles. To help alleviate the traffic on busy city streets, Vietnam's first-ever subway system has been under construction in Ho Chi Minh City with the help of foreign investment from Japan, France and China. Consumers have also been embracing new technologies the EU can sell to them; Vietnam ranks 10th globally in terms of the number of mobile phone subscriptions, ahead of Germany, Thailand and the United Kingdom, among others.6
While it is clear there has been progress, Vietnam's transformation has been slower than we'd like. In 2012, Vietnam unveiled a broad, “three pillar” economic reform program, proposing to restructure public investment, state-owned enterprises and the banking sector, but progress in many areas has been slow. Additionally, Vietnam's banking sector is undercapitalized, while non-performing loans weigh heavily on banks and businesses.
Impact on Southeast Asia
In my view, this new trade agreement between Vietnam and the EU is also quite significant for the ASEAN Group (Association of Southeast Asian Nations) because it seems likely to us that other countries in that grouping will also join in this trade liberalization movement, which could benefit the entire region. Singapore already has a free trade agreement with the EU and other ASEAN members including Thailand, Myanmar, Cambodia, Laos, Indonesia, Brunei, and the Philippines would also likely benefit. So, this agreement is quite positive, and a good move by the Vietnamese.
Vietnam offers many of the key characteristics that make Southeast Asia generally such an attractive destination to global investors like us. In addition to natural resources, the region contains pockets of advanced technology, notably in Singapore and parts of Thailand and Malaysia, as well as some world-class banking and telecommunications businesses. Per-capita income across much of the region is low, especially in countries such as Laos, Cambodia and Myanmar, which have only recently begun to transition to market economic structures, providing opportunities for low-cost manufacturing businesses.
Many Southeast Asian countries also have very favorable demographic profiles, with large working-age populations, while economic restructuring in a number of countries, most notably Indonesia, has the potential to raise productivity and corporate profitability. In addition, lying between China and India on one of the world's busiest trade routes, Southeast Asia is likely to benefit significantly should various other free trade initiatives come to fruition. Within Southeast Asia itself, the planned ASEAN Economic Community could create a market of 600 million people, combining the diverse resources of the region, which we believe should be to the benefit of all.
Our research suggests the presence of many well-managed businesses in Southeast Asia whose valuations are below those implied by our assessment of their longer-term prospects. We are looking forward to finding more opportunities in this region—including Vietnam.
我们的研究表明东南亚很多管理良好的企业估值低于我们评估的长期前景隐含的价值。我们期待在该地区 — 包括越南发掘更多机会。
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1. Source: European Commission, “EU and Vietnam Reach Agreement on Free Trade Deal,” August 4, 2015.
2. Sources: IMF, World Bank, 2014.
3. Source: European Commission, “EU and Vietnam Reach Agreement on Free Trade Deal,” August 4, 2015.
4. Source: Financial Times, “Vietnam's Inward Investment Surge: Will It Last?” April 24, 2014.
5. Source: CIA World FactBook, as of August 2015.
资料来源：CIA World FactBook ，截至2015年8月。
6. Source: CIA World Factbook, as of 2014.