Investor Confidence in Vietnam High as the Country Moves Beyond Gold

May 23, 2014 Posted by Vietnam Briefing Reading Time: 3 minutes

HANOI – When investors look at Asia, the countries that tend to draw their attention are China, Japan, India and Indonesia. However, there is more than meets the eye: Southeast Asia provides significant investment opportunities. Vietnam, along with Thailand, are the best representatives of this region – with a robust and growing middle class along with a young population, these two countries are leaders in the wave of development sweeping across the region.

Vietnam currently has the fastest-growing middle class in Southeast Asia. Analysts predict that it will almost triple in size from its current 12 million and reach 33 million by 2020, according to a survey by the Boston Consulting Group. The country’s total population in 2020 is predicted to be over 100 million.

This strong growth trend has not been ignored; China’s direct investment in Vietnam soared 7.1-fold to US$2.27 billion in approved FDI projects for 2013. In fact, as wages rise in China, many Chinese businesses have moved their production to the lower-cost Vietnam. To ease these relocations, both countries have agreed on regulatory reforms which seek to ease cross-border investment.

While some worry that Vietnam’s recent tensions with China may deter investors, investment levels still seem healthy – by the end of May 2014, Vietnam had 16,323 valid foreign-invested projects, with a total registered capital of US$237 billion.

The main investors so far in 2014 are:

South Korea with US$1.12 billion;
Japan with US$531 million; and
Singapore with US$479.1 million.

The major recipients of these investments have been:

Binh Duong province with US$792.9 million;
Ho Chi Minh City with US$749.1 million; and
Dong Nai province with US$537.8 million.

Vietnam’s major export markets include the EU, U.S., Japan, China and ASEAN.

Drop in gold demand points to greater trust in local economy

Vietnam, like Asia in general, is seeing a decline in demand for gold – Asia accounts for more than half of world gold consumption. Decelerating inflation and more attractive opportunities in stocks, property and bank deposits have driven demand away from gold. This trend clearly shows the increasing trust that the country’s expanding middle class has in the economy at large. Traditionally, many saw gold as the only safe way to store their money, but now they are much more willing to store their money in banks and invest into businesses, stocks and other types of financial instruments.

According to Nguyen Thanh Long, chairman of the Vietnam Gold Traders Association, this trend is new in Vietnam. He explains, “When the economy was unstable and inflation high, people only trusted gold. Now people are seeking investment in stocks and property, and even simply depositing money at banks can give them good returns so demand has dropped sharply.”

Gold consumption in Vietnam, the largest Southeast Asian gold consumer after Thailand, is likely to shrink by half this year. Demand may drop to between 25 and 30 metric tons from a high of 60 to 70 tons in 2013.

Goldman Sachs Group Inc. and Morgan Stanley expect further price declines in 2014.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email vietnam@dezshira.com or visit www.dezshira.com.

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