Since the 1970s, when emerging markets were first identified as potentially lucrative investment opportunities, investors have become increasingly confident about investing in these markets. Nowhere more so is this the case than in Asia.
The region’s unique combination of markets with fast growth rates, youthful, dynamic and educated populations and economies that are open to trade, have proved worthy investments. Frontier markets – countries which are not yet large enough to be considered emerging, but are a subset of smaller, rapidly growing and fully functioning markets – are now very much the focus for international investment managers.
This is demonstrated by positive fund inflows for south east Asia, while BRIC countries experienced fund outflows of $15 billion as valuations became less attractive. With a 2012 of 2x PBR, 13x PER for China, and 2.7x PBR and 15x PER for India, the BRIC countries provide less compelling valuations than that of frontier markets such as Vietnam which is trading on 1.1x PBR. Furthermore, historical data indicates that investors have a 95% chance of generating a return of up to 60-100% over a one-year time horizon when buying equity at lower than 1.2x PBR.
The latest IMF forecasts indicate 8% GDP growth for developing Asian economies which is in stark contrast to a modest 1.9% for advanced economies in 2012. Over the next decade, Vietnam and other frontier markets in the Indochina region are predicted to generate around three times the average rate of growth of developed nations.
As the largest frontier market in the region, Vietnam has a young and dynamic economy with a total population of 90 million, of which 68% are of working age. Over the last 10 years, Vietnam’s average annual growth rate has been 7.3%, second-fastest in the world behind China. The economy continues to benefit from a skilled and cheap labour force, which has allowed Vietnam to attract significant foreign direct investment and has helped drive vibrant manufacturing and export focused industries. Per capita income increased from $400 in 2000 to $1,360 in 2011. This increase in wealth has underpinned Vietnam’s economy where consumption is 68% of GDP versus 35% in China and 57% in India.
Cambodia has had a strong and stable government in place for over a decade and is eager to recognise its full economic potential. The government is promoting FDI by offering 100% foreign ownership of companies, major tax and import incentives, effective dollarisation of the economy and no capital controls.
Both Cambodia and Laos are following growth paths similar to Vietnam’s. Laos and Cambodia launched their stock exchanges last year and, crucially, both have not imposed barriers to foreign participants. Myanmar (once sanctions are lifted), with its large population and vast resources, is also likely to provide exciting opportunities over the coming years.
Dragon Capital was established in Ho Chi Minh City, Vietnam, in 1994 with an initial base of $16 million and eight staff. Its mission then, as it is now, is “to be a top class facilitator of capital by providing attractive returns to investors, value to companies, and a desirable workplace for employees. It seeks to achieve these goals with a steadfast commitment to professionalism and integrity, driven by a long-term commitment to the sustainable development of the environment, society and economy.”
As of January 2012, Dragon Capital manages $1 billion through five different asset-class products and had a headcount in excess of 100. It has offices in Ho Chi Minh City, Hanoi (registered with Vietnam’s SSC), the United Kingdom (regulated by the FSA), Bangkok and Hong Kong (registered with SFC). Its founding partner, Dominic Scriven CEO, OBE, is still at the helm and envisages a bright future for Vietnam and the Indochina region, despite the global economic slowdown.
As part of its ESG, Dragon Capital encourages a focus on sustainability. Dominic Scriven recently explained: “Our emphasis on encouraging good ESG practice in Vietnam and the region has generated a number of positive results for Dragon. We have secured our position in the market as a leading proponent of strong corporate governance , are a trusted government partner in capital market development, and we retain strong institutional links at all levels of government. Governance, strategic advice and performance are the keys to our competitive advantage rather than simply assets under management.”
Scriven has also recently pointed out that: “Dragon has grown from its solely Vietnam focused roots to play a regional role with its latest initiative which is the Indochina Opportunities Fund, in partnership with an Asian frontier market focused private equity outfit, Frontier Investment & Development Partners. The surrounding countries of Cambodia and Laos are what might be considered south east Asia’s best kept investment secret.”
Dragon Capital’s Indochina Opportunities Fund has been positioned as an ‘alternative Asian resource, infrastructure and consumer growth play’ that offers a valuable investment opportunity in Asia, with a compelling mix of sectors and the benefit of geographical diversification. The fund is also the first regional offering of its kind and is the culmination of three years of preparation. It is also being shaped as a model for sustainable private equity investment in frontier markets, by offering investors a rare combination of potentially high investment returns and positive social impact.
To learn more about investment opportunities in Vietnam and the wider region, visit: www.dragoncapital.com
For more information please contact:
Dragon Capital Group Limited
1901 Me Linh Point, 2 Ngo Duc Ke, District 1, Ho Chi Minh City, Vietnam
T: +84 8 3823 9355 / F: +84 8 3823 9366
Dragon Capital Markets Europe T: +44 1225 731 402