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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Yet Another Reason To Invest in Vietnam and Pakistan

Economics / Emerging Markets Dec 27, 2015 - 03:45 PM GMT

By: Submissions

Economics

Dylan Waller writes: Vietnam and Pakistan’s automotive industries are both poised for substantial growth, and consequently present a flurry of investment opportunities.  Both countries have been positive outliers in Asia, due to superior stock market performance, higher economic growth, and also due to the relatively lower FX risks.  As both countries begin their transition to emerging markets, the automotive industry in particular represents a strategic outlet for investors to profit from the superior investment landscape that is present in both countries.


Pakistan

Stocks operating in this industry have already witnessed a substantial boom, yet the industry is still poised for further growth.  During the past five years, key players in the industry have delivered substantial gains:

  • Pak Suzuki Motor Company Limited’s stock price has increased by 595.9% in the past five years.
  • Indus Motor Company Limited’s stock price has increased by 296.3% in the past five years.
  • Yet these gains are all negligent when compared to Honda Atlas Car Limited’s gain of 2,078% in the past five years.

The Pakistan Automotive Manufacturers Association reported 62% YoY growth in this industry in November.  Despite the strong growth displayed, there is still ample room for growth in the long run, as the country currently only has approximately 14 cars per 1,000 people.  

Stock price movement has stabilized, as the companies have collectively delivered a 20.5% stock price gain in the past year, still considerably higher than the KSE Index.  With valuation currently at a strategic low point, for these companies and Pakistan’s stock market in general, a futuristic approach towards investment in these companies is befitting.

Vietnam

Vietnam’s industry has been experiencing a similar boom, amid the relatively slower growth found in this industry in other emerging markets.  During the first eight months of this year, car sales increased by 62% YoY.   The combination of increased automotive sales, and the plunging price of rubber, has created an opportunity to invest in tire manufacturers, which are benefiting both from low rubber prices and the strong growth in this industry. The Economic Intelligence Unit projects that rubber prices will continue to remain low through 2020.

Year % Change in USD
2016 3.7%
2017 11.4%
2018 5.2%
2019 0.8%
2020 1.4%

Source: EIU

Similar to Pakistan’s stock market, Vietnam’s stock market is also relegated, with very low valuation despite Vietnam’s superior economic growth and the strong financial performance of companies listed on its exchange.  Da Nang Rubber JSC, Sao Vang Rubber JSC, and Southern Rubber Industry JSC all have a strong benchmark of success, and are strong picks for investors who wish to profit from the strong trends of growth in this industry.  Moreover, valuation for all three companies is well below average in Vietnam.

The industry is highly saturated with competition and Chinese tires are manufactured cheaper, yet performance for the companies has been strong.  An increased entrance of automobiles in Vietnam in the future provides the companies with the opportunity to achieve stronger growth, particularly from replacement tires.

Portfolio Shift

The transition from frontier to emerging seems to be the sweat spot for stronger economic growth, and the most ideal approach to capture the trends of high growth found in varying industries in Asia. While Pakistan and Vietnam have been thriving in this industry, other ASEAN countries have struggled.  During the first 5 months of this year, auto sales in Indonesia and Thailand declined by 6.2% and 11.8% respectively, while sales stalled at 0% in Malaysia.  The higher growth and lower valuation found in both countries certainly makes a shift of investment to these countries befitting.  Ironically the areas in Asia delivering the strongest growth are being relegated severely.  This presents a strong opportunity for those with a futuristic insight.

Dylan Waller is a Contributor for Seeking Alpha and Smartkarma, and a Macroeconomic Researcher for the crowdsourced consultancy Wikistrat. His research focuses on frontier and emerging markets, with a primary focus on the strategic advantages of Vietnam, Pakistan, India, The Philippines, and Mongolia. 

Email: dylan@nomadicequity.com

Website: www.nomadicequity.com

Copyright © 2015 Dylan Waller - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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