According to Ngo Vinh Tuan, head of investment banking at Viet Capital Securities, overseas investors will eye possible mergers and acquisitions (M&A) with domestic companies, as well as initial public offerings (IPOs) of well-known names this year.
“We’re likely to see continuous investments from foreign investors, especially Japanese, Korean, Singaporean, Taiwanese, and Thai. Key industries include retail, consumer goods, real estate, and industrials,” Tuan said. “As more large Vietnamese firms become available for IPOs and M&As with foreigners, the size of deals will be larger and more complex.”
Some high-profile listings and IPOs of 2017 include Vietjet Aviation JSC- completed last month, Saigon Trading Group, PetroVietnam Oil Corporation, Vietnam urban and Industrial Zone Development Investment Corporation Co., Ltd., and telecommunications giant Mobifone.
Most investors are lured in by Vietnam’s consumer-related companies thanks to their positive prospects in the fast-growing economy. In the last decade, Vietnam’s GDP has tripled, with average per capita income doubled, and one-third of the 90-plus million population now resides in urban areas. About 3.4 million Vietnamese families now have annual income of US$5,000 or more, compared to only 1.6 million in 2005.
The average Vietnamese is still young at 31 years of age. The changing demographics, with a rising middle-class in cities and higher disposable income, have bolstered private consumption.
“Compared to the previous generations, Vietnamese consumers are now more willing to spend for personal fulfilment, thanks to their higher income. They want to open their wallet for experiences, gadgets, fitness programmes, and education, which are good for companies in these industries,” said Richard Burrage, CEO of Cimogo Vietnam, a consumer market research company in Vietnam.
However, Burrage noted that not all consumer-related sectors will benefit from shifting demographics in Vietnam. For example, young Vietnamese consumers now prefer a proactive approach to healthcare, which means visiting the gym, dieting, or enrolling in fitness programmes rather than buying medicine. The latest smartphone is now their status symbol, not a fancy motorbike.
“Tourism, hospitality, and air transportation will grow as consumers are eager to travel and discover the world. Their adventures, and daily lives, are likely to be captured by smartphones and posted on social media, thus firms offering digital services will also become popular”, Burrage said.
On the contrary, pharmaceuticals, motorbikes, and fast-moving consumer goods (FMCG) will move to the back-burner.
It is indeed surprising that FMCG growth in Vietnam may be stalled while Vietnam’s private consumption in general will surge. Ralf Mattheas, CEO of Infocus Vietnam, reasoned that as Vietnamese consumers dedicate a larger part of their budget to personal fulfilment goals, they are likely to cut back on the basics, including FMCG.
“Investors should take notice that FMCG may not experience a ‘great boom’ in Vietnam as consumers continue to choose reasonably-priced products with good health benefits, rather than splurging on these basics. Most consumers, in fact, would rather save up for the latest smartphone, enrol in classes, or travel around instead,” said Mattheas.
Experts also reminded investors that modern retail in Vietnam, including convenience stores and supermarkets, is still in its early stages, especially in rural areas. It will take a while for modern channels to phase out traditional ones like wet markets or mom-and pop stores, which are ubiquitous in any Vietnamese neighbourhood. Investments in modern retail, as a result, should be long-term.