Templeton Opens Vietnam Office, Bullish on Vietnam

Mark Mobius, the Executive Chairman of Templeton Asset Management and a manager of various emerging market focused funds, is bullish on the Vietnam stock market - despite its 45% slump this year. From Bloomberg:

``'Vietnam's stock market now is down, so there are more opportunities,' Mobius said in an interview in Ho Chi Minh City, where Templeton opened its Vietnam representative office today. 'The market will go up and will be much more valuable in about three years.'''

He further added that Templeton will invest in retail banking, manufacturing, and agriculture companies on Ho Chi Minh City's stock exchange. Earlier this year, Templeton also bought a 49% stake in the fund management unit (Vietcombank Fund Management) of the Joint-Stock Commercial Bank for Foreign Trade of Vietnam.

Kith Meng: "Cambodia's Transforming Tycoon"

The Financial Times recently profiled Cambodian tycoon Kith Meng (who also recently made the cover of Forbes Asia and was profiled in the Asia Times), whose Royal Group includes a joint venture with ANZ bank, a telecom business partnership with Millicom International Cellular, and the exclusive distribution rights in Cambodia for various multi­nationals such as Canon, Siemens, Motorola, Pizza Hut, and KFC. Highlights from the interview:

“'We are going into every sector we can because Cambodia needs every sector to grow,' he says. 'After that, we’ll see in what industry we want to be an Asian player.'”

“'From outside, people can make any statement they want, but those [investors] who actually come here realise that Cambodia is a place where they should do business,' he says."

"He makes no qualms about taking a different stance from the local elite, which tends to close ranks rather than open its doors to foreigners. 'I [make joint ventures] with international companies, not Cambodian ones,' he says."

“We, as Cambodians, need outside expertise,” says Mr Kith Meng.

Kit Meng has been called ruthless (especially with his business partners and rivals) and apparently he has his "share of enemies" in Cambodia. Nevertheless, he clearly gets things done in Cambodia.

Cambodian Microfinancier Looks Abroad For Partners & Expansion

Already the first Cambodian bank to obtain a banking licence abroad from neighbouring Laos (with China and Vietnam eyed for future expansion), Cambodian microfinancier Acleda (which has the country’s largest retail banking network) is reportedly looking for a Western shareholder. From the Financial Times:

"In Channy, chief executive, told the Financial Times that Acleda had received 19 investment proposals and would decide next month which one would make the best 'strategic shareholder'. Western banks are on the list, although he would not disclose names."

Originally a United Nations backed microfinance program­me started 15 years ago, Acleda has established itself as one of Asia’s leading providers of microcredit - with the potential to fill the lending void to the lower-income sector in markets outside of Cambodia. Currently, Acleda is 51% owned by its staff and other locals with the remaining 49% owned by foreign funds and international donors (such as the IFC).

Vietnam: Lessons From the Famine of 1945

In an opinion piece appearing in the The Straits Times, David Koh recounts the famine of 1945 when an estimated 2 million people (10% of the total population of Vietnam) perished as a result of being forced to export food and agricultural products to Japan and urges Vietnamese to remember the lessons from that largely forgotten era. From the The Straits Times:

"Food security has again become a matter of concern. Vietnam is now the second top rice-exporter in the world. The government enforced a suspension of rice exports earlier in the year, but it has been lifted since. Then there are the higher frequency and intensity of natural disasters that strike Vietnam every year, in particular the typhoons that bring flooding, damaging crops and harvests...."

"Steady growth over the past two decades has brought about levels of consumption that are unreal and even unsustainable. Vietnam now has only US$20.7 billion (S$29.4 billion) in reserves, roughly equivalent to the government's annual budget."

Vietnam Inflation: "Even the Ghosts are Suffering"

According to the New York Times, even the ghosts in Vietnam are suffering from the effects of inflation:

"August is the month when Buddhists ply the hungry ghosts of the dead with food and wine and cigarettes and honor them with paper offerings that represent the good things in life: cars, houses, motorbikes, stereo sets, fancy suits. But like everything else in Vietnam, these brightly colored offerings have risen steeply in price, and shopkeepers say people are buying fewer gifts to burn for the dead."

The article further states that the problems in Vietnam are self-inflicted, the result of:

"...an overheated economy as Vietnam raced forward with inadequate safeguards. Too much capital, particularly from foreign investment, has collided with bottlenecks in infrastructure and capacity...."

Bottomline: Vietnam is still a young and immature emerging market, experiencing its first serious economic (and political?) growing pains - much like Russia in the 1990s (which came roaring back a decade later...)

"Huge Hong Kong Investment Opportunities in Vietnam"

A (somewhat dated) promotional video about real estate investing in Vietnam, from the HKTDC:

Bloomberg's Interview of Thomas Hugger, Executive Director of Leopard Capital

Thomas Hugger, Executive Director of Leopard Capital, was recently interviewed on Bloomberg TV where he discussed investment opportunities in Cambodia. The entire interview ("Cambodia's Investment Potential; Investing In Cambodia") can be viewed on Youtube.

Chinese Investment Capital Finding its Way Into Laos

Laos is increasingly in the race to attract and win Chinese investment capital. From the South China Morning Post:

"Mr [Vichit] Xindavong [the Laotian ambassador to China] said Laos' abundant supply of young labour and natural resources had attracted an accumulated $1US billion investment from China since 2000, or one-sixth of the country's total foreign direct investment. 'We welcome Chinese investors, especially those who want to set up factories,' he said yesterday."

The ambassador further states that last year, China overtook Thailand as the largest source of foreign investment in the country. Clearly Laos is following in the same footsteps of its larger neighbors - as Vietnam becomes the "next China" and Cambodia the "next Vietnam," Laos is becoming the "next Cambodia...."

Vietnam: The Next SE Asia Petrochemical Hub

According to a recent article in ICIS Chemical Business, Vietnam's economic growth and domestic demand is attracting major petrochemical investments. From ICIS Chemical Business:

"With base resin demand nearing 2m tonnes/year, Vietnam is attracting investments from major petrochemical players such as Siam Cement Group (SGC) of Thailand as well as Mitsui and Idemitsu Kosan from Japan."

The article further states that if all planned petrochemical related projects are completed, Vietnam will become one of the major petrochemical players in Southeast Asia, surpassing Indonesia and the Philippines in terms of olefin capacity.

Vietnam Corporate Earnings: "Huge Losses This Year"

After nearly doubling in value during the early part of 2007, the Ho Chi Minh Stock Exchange (HOSE) lost roughly 68% of its value during the following 15 months and the losing streak is not likely to reverse itself any time soon. The Wall Street Journal recently reported:

"A further concern is corporate earnings, expected to slump this year after several years of strong growth. Thomas Lanyi, director of the $100US million Azalea Fund, run by Ho Chi Minh City-based Mekong Capital, reckons most Vietnamese companies will suffer "huge losses" this year."

Vietnam PE ratios have fallen so much, from 35 to 40 times earnings down to just 5 to 10 times earnings, that bargain hunters are "cherry-picking" stocks that they believe will rise during the next upswing. Attractive stocks cited by investors in the article include Tan Tao Industrial Park (ITA. Vietnam), the nation's largest owner-manager of industrial parks; Vinamilk (VNM. Vietnam), the country's largest dairy producer; and Pha Lai Thermal Power (PPC.Vietnam), an owner of a power distribution network and a coal mine.

The Savan Vegas Hotel & Casino in Laos Soon to Open

The Savan Vegas Hotel & Casino being developed by Macau based Sanum Investments is set for a September opening in Laos' Savannakhet province along the Thailand border. The US$25 million project will be the area's first five-star hotel and entertainment complex and will include 180 guest rooms, a 58,000-square-foot casino (with 300 slot machines and 80 table games), two restaurants, a coffee shop, bar, pool and spa. Laos is the latest Southeast Asian country to encourage casino gaming investments. According to CasinoCity, there are already 25 casinos in Cambodia and 4 in Vietnam where a 2,300 room "Las Vegas style" casino project (The Ho Tram Strip ) is being constructed southeast of Ho Chi Minh City by Toronto-Vancouver based Asian Coast Development (Canada) Ltd. ("ACDL").

The Oil Majors Begin to Court Vietnam, Despite Objections From China

In an article prepared for the The Straits Times, Michael Richardson (an energy and security specialist at the Institute of Southeast Asian Studies) writes that two of the world's largest oil companies appear willing to risk their substantial investments in China, potentially the world's largest energy market, in order to pursue exploration ventures with Vietnam in waters also claimed by China:

"Two of the world's largest oil companies, ExxonMobil of the United States and Britain's BP, appear ready to ignore a challenge by China. Beijing has confirmed that it has told Exxon to cancel planned oil exploration ventures off the coast of Vietnam with the state oil group, PetroVietnam. Evidently following a similar warning from Beijing, BP last year halted plans to carry out exploration work off southern Vietnam, citing territorial tensions."

China, with falling domestic production, may back off - long enough until the first of its own deepwater rigs are completed in 2011.

Cambodian Elections Being Called the "Least Violent Political Campaign in Cambodia's Recent History"

A Booming economy and a surge of patriotism from the face off against Thailand for sovereignty over the disputed Preah Vihear temple is expected to keep Hun Sen (age 57), one of Asia's longest serving leaders, in power with a solid majority of parliamentary seats. In fact, Hun Sen's Cambodian People's Party (CPP) is expected to win at least 90 out of 123 seats with 26 seats going to the Sam Rainsy Party, Cambodia's main opposition party. The New York Times reported that experts are saying the elections have turned out to be the "least violent political campaign in Cambodia's recent history." Meanwhile, the Wall Street Journal noted that:

"Foreign investors, many from Asia, are watching the election closely because they hope Cambodia will remain politically stable, increasing its allure as a new locale for investment. Some have begun snapping up land on speculation of rising prices and have spent heavily on new garment factories, hotels and other infrastructure. Chevron Corp. is considering developing an oil deposit off Cambodia's coast.
While a clear victory for Mr. Hun Sen's government would likely reassure many of those investors, it wouldn't necessarily resolve one of the country's biggest problems: its reputation for corruption."

Beerlao: Following in the Footsteps of Mexico's Corona

A recent Wall Street Journal feature story profiled Lao Brewery Co. and its Beerlao, a range of beers (lager, light beer, and dark beer) that were named by Time Magazine as Asia's best beer in 2004. Beerlao has long been a staple of backpackers and other visitors to Laos and is now available in major international markets such as the UK and Australia. The company itself was founded as a French-Lao joint venture in 1971, and today is 50% owned by Carlsberg Group of Denmark with the government of Laos owning the remaining shares. Producing 200 million liters of beer a year, the Lao Brewery is the biggest taxpayer in Laos and has the potential to become a global brand icon, putting Laos on the map. The Wall Street Journal reports:

"Lao Brewery doesn't want to come on too strong. Its marketing manager, 47-year-old Bounkanh Kounlabouth, fears that promoting Beerlao too aggressively will scare off its grass-roots following. Instead, he would rather follow Corona's example of becoming an 'accidental' brand. 'We don't want to undermine Beerlao's word-of- mouth appeal, so for us it is better to let it grow naturally.'"

The Lao Brewery Co. already has 99% of the local beer market making its international growth something to watch in the coming years...

Here is a promotional video from their website:

Landgrabs: Is History Turning Full Cycle in Cambodia?

Cambodia is booming but as the New York Times recently reported, history may be turning full cycle in the form of land grabs and population displacements:

"With the economy on the rise, land is being seized for logging, agriculture, mining, tourism and fisheries, and in Phnom Penh, soaring land prices have touched off what one official called a frenzy of land grabs by the rich and powerful. The seizures can be violent, including late-night raids by the police and military. Sometimes, shanty neighborhoods burn down, apparently victims of arson."

In fact, a February 2008 Amnesty International report entitled Rights Razed: Forced Evictions in Cambodia raised the concern that 150,000 Cambodians across the country are at risk of being evicted in the wake of development projects, land disputes and outright land grabbing, and concluded there is an urgent need to bolster the legal framework to protect people from forced evictions.

Certainly land grabs and land disputes in frontier emerging markets (Think Russia in the 1990s...) or where the rule of law has weakened (Think Zimbabwe...) are nothing new. Nevertheless, such occurrences should give investors and property owners, no matter how large or small or well connected, a cause for concern...

Cambodian Elections...

Ahead of elections in Cambodia, the Wall Street Journal and other news outlets were reporting that Hun Sen was in a strong position to win despite the fact that corruption is widespread and the country consistently ranks low on corruption and economic freedom indexes. In fact, Cambodia was ranked as the 100th freest economy in the 2008 Index of Economic Freedom - just between Zambia (ranked 99) and Brazil (ranked 101); and 151st (together with Belarus, Côte d´Ivoire, Equatorial Guinea, and Uzbekistan) out of 163 countries in Transparency International's Corruption Perceptions Index for 2006. Either way, leadership stability suits investors just fine. In fact, the Financial Times recently quoted Douglas Clayton, the Founder of Leopard Capital, as saying:

"'Until a few years ago, Cambodia was not considered investable because of a perception of political instability and a weak legal structure,' says Douglas Clayton, who has been investing in south-east Asia for 20 years and manages Leopard Capital, a Cambodian fund. 'We can now predict who will be running the government for the next five or even 10 years - and a government that is pro-business - which isn't the case in Thailand, Malaysia or the Philippines.'"

Vietnam as the Next China, Cambodia as the Next Vietnam? Well, Sort of...

The New York Times recently reported that investors are seeking options to a costly China - a strategy that was also recently outlined in an article by Chris Devonshire-Ellis entitled Corporate America's China-plus-one Strategy. The New York Times reports:

"A popular saying among Western investors is that Vietnam is the next China. Cambodia, with even lower wages attracting garment manufacturers, is called the next Vietnam."

However, while China has an estimated population of over 1.33 billion, Vietnam's estimated population is only 86.1 million while Cambodia's estimated population is only 14.2 million. Hence, as investors pore in, costs, especially labor costs, are certain to rise. Moreover, with a total estimated total population of just over 107 million, smaller than the estimated population of the Chinese province of Guangdong (0ver 113 million), the entire Indochina region lacks a sizable internal market. Nevertheless, the Indochina region will certainly stand to gain some benefits from rising costs in China as investors increasingly seek out alternative locations for their operations.

Cambodia: The Next Frontier For Private Equity?

The Wall Street Journal recently reported that 22 private equity fund managers visited Cambodia in May to scope out potential investment opportunities. However, given Cambodia's reputation as a frontier emerging market with weak business laws and corruption, finding enough suitable investments to absorb several hundred million dollars may prove to be a challenge. Nevertheless, Leopard Capital is seeking to raise US$100 million for its Leopard Cambodia Fund. The fund will seek out small and medium sized investments in a broad range of sectors such as financial services, infrastructure development, agro-industry, health care, tourism, human resource development, hotels, and property. Meanwhile, the Cambodia Emerald Fund which split from Leopard in 2007, is also aiming to raise US$100 million.

"Las Vegas Style" Casino Coming to Vietnam

In May of 2008, Asian Coast Development (Canada) Ltd. ("ACDL"), a Toronto-Vancouver based company that specializes in the creation and development of coastal resorts and casinos in Vietnam, broke ground on what will become Vietnam's first "Las Vegas style" casino - The Ho Tram Strip. Located southeast of Ho Chi Minh City in Ba Ria-Vung Tau Province, the project will have 2300 rooms and a "Las Vegas style" casino featuring 180 table games and 2000 electronic games. As the lead investor, ACDL will have a 30% stake in the project while its main partner, New York hedge fund Harbinger Capital LLC, will have a 25% stake.

Michael Aymong, the chairman of ACDL, was quoted in the Wall Street Journal as saying:

"'It's a needed project in Vietnam' that, in spite of the country's poor infrastructure, will be able to 'effectively compete' with integrated resorts in neighboring China, Malaysia and Singapore."