"Quietly, Quietly Making Noise"

By Roger Nusbaum | August 20, 2008 | 10:46 AM | 0 Comments

If you ever bought a second Jimmy Buffet disc (we've got four) you might recognize the title of this post.

Key market bottoms are often very quiet, or at least happen without too much attention paid or credence given.

One market I have been keen on for a couple of years now is Vietnam. The population is young (average age around 20), the country is big (about 70 million people), labor is cheaper than China, people want to work and they might even have a little oil.

You probably know that the growth has been white hot, they have gotten a stock market up and running this decade, there is a tremendous flow of foreign investment (direct and otherwise) pouring in all of which lead to some serious inflation problems and a massive stock market correction.

Take a peak at the chart. The crosshair isolates the low at 364 (down from well over 1000). Today the index closed at 508--a 39% lift that very few people seem to have noticed.

I have no idea if a bottom is in or not but I feel heartened that after a lot of coverage on the way up a couple of years ago, lots of fear as the inflation rate went up into the twenties (yeah, it's that high) a bounce has occurred with almost no fanfare.

I first wrote about Vietnam for Real Money in April 2006 (sub required). The easiest way in that I know of is the Vietnam Opportunity Fund. The symbol to chart it on Yahoo is VOF.L, the symbol to trade it is VTOPF. I bought VTOPF personally and for a couple of clients (literally) shortly after that article ran at about $2.48, sold half of it in Q1 2007 at $4.73 (a laughably lucky sale), have seen it trade as low as $1.97 and now it is around $2.40.

I mention this for two reasons. First, as I mentioned in that first article, Vietnam will be a wild ride. Also, at this point my remaining exposure is essentially all house money that I can afford to let ride for a long time. With this sort of market 100% gains in short periods of time, followed by 50% declines in short periods of time should be expected. If you are lucky enough to get a quick double, take some off the table. At this point I am keeping the position I have (unless a better mousetrap comes along). 

Part of the original hook for me was the idea that Vietnam, like several other countries with similar attributes, is going to become much more globally relevant for several reasons. I am certain of this and it is a good bet that capital markets will benefit from this.

Unfortunately none of this does anything to tell us which direction the next 30% will be. One last point is that the weighting is very small. I started it at 1%, took some off as mentioned and now for the few people that have it is just under 1%. While that might seem low, if it doubles again at some point (far from a black swan) it would add about 100 basis points of return to the portfolio which could be meaningful in an environment of muted or poor domestic returns.

The bigger macro (sorry, this is the final point) is that US based investors are probably going to need to explore countries like Vietnam in order to gave themselves a better shot of achieving normal equity returns for their portfolios.