Vietnam grew faster than China last year and UBS says its economy still has ‘huge potential’

Vietnam’s economic outlook is positive and has “huge potential,” according to UBS Global Wealth Management’s Kelvin Tay.

“Vietnam is a market that we like,” Tay, regional chief investment officer at the firm, told CNBC’s “Squawk Box Asia” on Wednesday.

“It’s an economy that we think has huge potential,” Tay said, adding that growth in the country is “outstripping” its frontier market peers.

Vietnam was one of Asia’s top-performing economies in 2020 and among the few countries that managed to record growth last year as authorities globally scrambled in their battle against the coronavirus pandemic. It saw 2.9% growth in 2020, narrowly edged out by the Taiwanese economy’s 2.98% growth.

In recent years, the nation has been viewed as an alternative manufacturing hub for companies looking to move production out of China to avoid being caught in the crossfire of tensions between Beijing and Washington.

The Vietnamese stock market is also seeing strong growth and is on track to become bigger than the Philippines in terms of market capitalization “sometime the middle of this year,” according to Tay.

The VN-Index in Vietnam initially saw a strong start to 2021 but later fell sharply as fears of a coronavirus resurgence weighed on investor sentiment.

So far in 2021, the index has risen about 1%, as of its Tuesday close.

Still, Tay acknowledged that risks remain for those looking to invest in Vietnam.

Firstly, liquidity remains a challenge, the chief investment officer said.

Furthermore, he cautioned that Vietnamese authorities have been known to use currency controls as a monetary policy choice.

“If the economy is not doing well they’re likely to actually depreciate the Vietnamese dong sharply just to try to stimulate the economy,” Tay said.

Late last year, the U.S. Treasury Department labeled the country a currency manipulator.

“Those are the kinds of risks that you take when you invest in one of the frontier markets,” Tay said. “Of course, when you get your timing correct … Vietnam is one of the best performing markets over the last three to five years.”

By Eustance Huang – CNBC – February 10, 2021