Comparing the behaviour of stock markets in Southeast Asian countries in parallel with their macroeconomic performances is an illuminating exercise.
Several countries in the Association of Southeast Asian Nations (ASEAN) which have experienced relatively strong growth over the past decades, particularly Singapore, Malaysia, Thailand, and Vietnam, have been designated as “economic tigers.”
A country’s stock market generally reflects the health of its economy. Among the ten ASEAN countries, six have stock exchanges that operate according to international standards: Singapore, Malaysia, Indonesia, the Philippines, Thailand, and Vietnam. The Phnom Penh Stock Exchange in Cambodia is too recent, too small and too susceptible to manipulation to be considered.
During the 2000s and 2010s, the stock markets associated with the Southeast Asian “economic tigers” recorded impressive performances, reflecting the economic achievements of these countries.
However, there has been a slowdown in the past two to three years due to the Covid-19 pandemic, the global economic slowdown (the Asian “tigers” heavily depend on exports to Western markets), and specific issues in some ASEAN countries, primarily related to politics.
Since the beginning of 2023, the Southeast Asian stock markets, as a whole, have significantly underperformed compared to major Western and Japanese financial markets.
From January 1 to August 31, 2023, while the New York Stock Exchange (S&P 500), Paris (CAC 40), Frankfurt (DAX 40), and Tokyo (NIKKEI 225) stock markets have respectively increased by 15%, 14%, 13%, and 23%, the performances of the ASEAN stock markets are as follows:
Ho Chi Minh: +19%
Jakarta: +1%
Singapore: -1%
Kuala Lumpur: -3%
Bangkok: -4%
Philippines: -6%
During the same period, the Shanghai Stock Exchange, which reflects the powerful Chinese economy, has remained nearly flat (+0.30%).
In these Southeast Asian and Chinese doldrums, which contrasts with the strong recovery of Western and Japanese stock markets, only the Ho Chi Minh Stock Exchange (combined with the Hanoi Stock Exchange) has stood out with a 19% increase.
The case of Vietnam deserves a closer examination as it holds valuable lessons for financiers and policymakers in other countries.
The Unique Case of Vietnam
The key factors contributing to the economic and financial success of this communist country with a population of 100 million are: reforms, transparency efforts in public affairs (anti-corruption measures), education, technology, and the implementation of a long-term vision-based policy. This can be summarized as “good governance.”
Shortly after the war, in the 1980s, Vietnam introduced structural economic reforms, including land privatization, economic liberalization, encouraging foreign investment, and establishing a genuine market economy.
Vietnam significantly attracted foreign direct investments, especially in sectors like agribusiness, mechanics, electronics, pharmaceuticals, and services. The technological component has continued to grow, increasing the value-added of production, thus raising workers’ wages and the population’s living standards.
In comparison, Cambodia’s mistake under Prime Minister Hun Sen over the same period was to remain primarily focused on a low-value-added basic industry (textiles), offering low wages to workers, and keeping the population in poverty.
Over the past two or three years, Vietnam, having become an ally of the United States against the Chinese threat, has fully benefited from the transfer of American-origin production units previously based in China to other Asia-Pacific countries with friendlier policies and relatively lower wages. This factory transfer involves high-value-added advanced industries and includes companies like Apple, Texas Instruments, and Motorola.
Cambodia under Hun Sen, on the other hand, is paying a high price in terms of missed opportunities due to its alignment with China in foreign policy matters.
In the primary sector, Vietnam has also made impressive progress through the privatization and modernization of agricultural operations, extensive irrigation policies, productivity improvements, and successful marketing efforts carried out in a highly professional manner.
In just about fifteen years, Vietnam has become a major cocoa producer, and the world’s second-largest producer of coffee.
In comparison, Cambodian agriculture, left to its own devices, is struggling. Almost all rural families are struggling to make ends meet, deeply indebted, and forced to send millions of their children to Thailand as exploited migrant workers just to survive.
Fighting Corruption and Nepotism
Taking Singapore as a possible model, Vietnam stands out for its efforts to combat government corruption. Strict laws are enacted and enforced to severely punish those who abuse state assets and public funds. This is in stark contrast to Cambodia’s practices, where the Hun Sen family has been plundering the country for decades.
To tackle nepotism often intertwined with corruption, a regulation (number 114) from the Communist Party of Vietnam’s Politburo prohibits the appointment of someone with a relative holding an equivalent position within the same ministry or department to a chief or deputy chief position. In Cambodia, where nepotism is rampant, the implementation of such a regulation would likely lead to the collapse of the government and the entire administration.
The long-term vision of Vietnamese political and economic leaders is evident in their investments in education and their focus on technological advancements, including generative artificial intelligence.
In contrast, a leader like Hun Sen, who is focused on maintaining power at all costs for himself and his children, cannot have a long-term vision for his country. His main concern is survival from day to day, meaning he navigates blindly solely to identify and eliminate real or imaginary enemies that could threaten his power.
Ho Chi Minh Stock Exchange Remains Attractive
A country’s stock market definitely reflects its economic and financial health, as well as the perception the public holds of its social and political stability.
After its strong recovery since the beginning of the year (+19%), is the Ho Chi Minh Stock Exchange becoming too “expensive” or “overvalued” compared to other financial markets? The answer here is no, considering that stock values reflect the future prospects of the companies represented by those stocks. The growth prospects of many Vietnamese companies, especially in technology-intensive sectors, are yet to be fully reflected in their stock prices.
As a portfolio manager at Paribas Asset Management in the 1980s, I developed a method for evaluating stocks (the “Payback Period”) that is mentioned in “Finance d’Entreprise,” a reference book on corporate finance by Pierre Vernimmen, who taught at France’s most famous business school named Ecole des Hautes Etudes Commerciales (HEC).
The method consists in adjusting the traditional Price-to-Earnings Ratio (PER) to earnings-per-share growth rate and to long-term interest rate. According to this approach, many Vietnamese companies are still undervalued on the Ho Chi Minh Stock Exchange.
[Photo by Michael Coghlan, via Wikimedia Commons]
Opinions expressed in this article are those of the author.
Sam Rainsy, Cambodia’s finance minister from 1993 to 1994, is the co-founder and acting leader of the opposition Cambodia National Rescue Party (CNRP).
