As multinational diversify supply chains from China, Vietnam obviously benefits. Vietnam has always fascinated me yet it is a frontier market I have not had the opportunity to visit, thanks to the pandemic lockdowns in Ho Chi Minh City. Yet I still believe that Vietnam is the beneficiary of major macro trends that are transforming the geopolitics, economics and financial markets of South East Asia.
Privatization of state owned companies continues to deepen the equity culture, thanks to the government’s doi moi economic policies. The index is not expensive at 14X and 2.3X price to book. FDI from South Korea, Japan, China, Taiwan, the US and the EU will boost economic growth as will extensive banking/financial sector reform. It is entirely possible that MSCI will upgrade Vietnam from frontier to emerging markets, though I doubt if this will happen in 2022.
The resurgence of global trade and tourism in the post pandemic era will be a steroid shot for Vietnamese equities.
As if 2021 was not bad enough for Turkish equities, I doubt if the macro storm clouds on the Bosphorous will lift anytime soon given $84 Brent, negative real rates and inflation time bomb that has exploded and President Erdogan’s bizarre monetary policy and refusal to accept central bank independence.
Turkey’s chronic current account deficit and reliance on speculative offshore hot money flows make its stock market kryptonite in a world where inflation is resurgent. Political risk is both high and erratic at a time when the geopolitics of the Black Sea, the Aegean, the East Med, the Caucasus and the Levant is white hot.
The Turkish lira is one of the world’s highest beta currencies and thus a certain looser during a time of rising US Treasury bond yields. Clint Eastwood’s Western “the good, the bad and the ugly” is an apt metaphor for emerging markets in 2022.
In my playbook, Vietnam is the good while Turkey is beyond ugly and downright fugly.
Also published on Medium.