Vietnam shares more than a border with China. Both have communist governments that are increasingly capitalist. They are surging from agrarian to post-industrial economies in a matter of a few decades. And they benefit from demand in the West for cheap imports of all sorts of goods.
Clothing might spring first to mind, but the goods coming out of both nations are increasingly complex. Vietnam's top exports are broadcasting equipment, computers, oil, leather footwear and integrated circuits, according to the Observatory of Economic Complexity. Only the shoes fall in the "cheap and cheerful" category.
Vietnamese people also share a lot of characteristics with the people of southwest China. This may explain the intense, sometimes tense, and even violent relationship between the two nations. Like feuding siblings, they share too much in kind to be kind to each other.
Vietnam has the upper hand in one respect -- how old its people are. The median age is 30, whereas it is 37 in China, and rising. That means the Vietnamese workforce is now at or reaching its peak productivity. Economic growth is running at 6.4%, according to Trading Economics, almost matching China's rate of 6.7%.
Demographics can be hard to experience viscerally. But the youth of its population is clear to anyone who spends any amount of time traveling around Vietnam, one of my favorite spots in Asia to visit. You'll be surprised that you hardly see any old people. This may sadly be a result of the "American War," as it's known in country, but it leaves Vietnam with an optimistic, "can do" spirit that is now coming into its own.
Vietnamese wages are also lower than those in China, so it is picking up some relocating and expanding businesses that are being priced out of the Middle Kingdom. For instance, Ningbo, China-based Shenzhou International Group Holdings HK:2313 is ramping up operations in lower-cost Vietnam, alleviating some of its capacity constraints.
Shenzhou is an OEM company that makes clothing incorporating materials such as Lycra and thermal fabrics, with a specialty in sportswear. Behind the scenes, it supplies Uniqlo and other top brands such as Adidas (ADDYY) , Mizuno, Nike (NKE) and Puma, approaching 15% of the clothing supply of those companies and 30% of Puma's.
I outlined last week how such companies are helping foreign fast-fashion brands like Uniqlo, H&M and Zara steal market share away from Chinese sports-apparel and street-clothing makers.
The factories that companies like Shenzhou are building are bringing people into cities and causing demand for urban housing. Farming has shrunk from some 25% of the economy in 2000 to 18% in 2014, a dramatic shift, while industry has risen from 36% to 38% of output, according to the CIA World Factbook.
Services, including tourism, have seen the biggest boom and now account for 44% of the economy, per a 2015 estimate from the CIA Factbook. (The previous numbers are from 2014, explaining why the sectors add up to more than 100%).
As a result of the fresh-faced, youthful demand, real estate in Vietnam saw a 12% increase in investment in 2016, compared with the previous year. Greater market transparency and projected economic growth of 6% in 2017, just shy of this year's rate, add to the momentum.
Residential property and hotel space are in particular demand. The Vietnamese housing market has not been well developed in the past, with a very small supply, so it experienced huge booms and massive busts. Prospective buyers got into fistfights while waiting in line to buy the handful of flats on offer. But Vietnamese property appears to be in a steadier upward trend now that the market is maturing.
Ho Chi Minh City -- the former Saigon -- is the second-most popular market in Asia for real estate development with institutional investors, according to the Urban Land Institute's report on Emerging Trends in Real Estate Asia Pacific 2017. Residential is particularly popular -- 71.4% of institutional investors rate Vietnamese apartments a buy, behind only Bangalore, where investors are unanimous that condos are a good bet -- but they will struggle to find supply.
Saigon also scores highly with institutional investors in terms of prospects for investment. It's fourth in that particular ranking behind only Bangalore (again), Mumbai and Manila. It's just ahead of Shenzhen and Shanghai. So Vietnam, at least in that respect, is outdoing Big Brother next door.
Vietnam and China have a staunch rivalry that occasionally bursts into actual conflict.
There were violent demonstrations outside the Chinese embassy in Hanoi and southern Vietnam in 2014 after a Chinese oil rig owned by the state-owned China National Offshore Oil Corp., better known as CNOOC (CEO) , miraculously appeared 17 nautical miles from the Paracel Islands, which both nations claim.
While that spat eventually died down, it resurfaced again at the start of this year, and again in April. Vietnam pushed China to withdraw the same $1 billion oil rig, Haiyang Shiyou 981, from waters contested by the two nations just outside the Gulf of Tonkin, after the rig appeared there on Jan. 16.
Vietnam said the rig had been moved to to "an overlapping area" between the continental shelves of central Vietnam and China's Hainan Island. China countered that the drilling platform was operating in "Chinese-controlled waters that are complexly undisputed."
"We hope the Vietnamese side can view this calmly, meet China half way and jointly work hard to appropriately handle relevant maritime issues," a spokesman told reporters, according to CNN.
The oil rig has been withdrawn and, according to the Web site Marine Traffic, is currently in a shipyard in Yantai, in Shandong Province. That's well away from the contested area, two-thirds of the way up China's coast, and opposite North Korea.
You've got a pure play on the country's nascent stock market with the VanEck Vectors Vietnam ETF (VNM) . It's a relatively small fund, as those tracking frontier markets tend to be, with $255 million in assets under management. It has a hefty dose of financials (24% of assets), consumer staples (21%) and real estate (14%), all sectors you'd want to focus on given its youthful demographics.
A young population? Urbanization? A coastline that's 3,260 kilometers long?
Vietnam certainly has a lot of favorable factors going for it, at a time that China's growth is flagging. You could do worse than taking a long position on a frontier market that's emerging at a rapid clip.
