11:17 | 30/12/2016 Cooperation
(VEN) - Foreign direct investment (FDI) receives a great deal of media attention in Vietnam, and there is a good reason for that - the country has been one of the world’s largest destinations for FDI over the past few years. In 2015, Vietnam saw US$23 billion in FDI, while in the first ten months of 2016, FDI totaled nearly US$18 billion. One country has been largely responsible for a substantial part of that: the Republic of Korea.
VinaCapital Chief Executive Officer Don Lam and Shinhan CEO Min Jung Kee sign a cooperation agreement
Korean companies were among the first to recognize our country’s tremendous potential. From 1995 to 2015, Korea invested an estimated US$45 billion in Vietnam, making it the largest foreign investor ahead of second-place Japan.
Samsung has been, by far, the largest single investor, spending about US$10 billion to construct manufacturing facilities throughout the country - a number that could double by 2020, according to some analysts. Today, 50 percent of all Samsung mobile phones are assembled in Vietnam. But it is not just phones being manufactured here. Samsung and LG are making TVs, washers, refrigerators, and other appliances here. Lotte is another company that has been a long-time investor in Vietnam, investing in the food business, hospitality, and retail. CJ Group is involved in a number of areas including cinemas (a sector in which it shares a leading position along with Korean company CGV), and food, having bought in to local meat processor Vissan earlier this year. And Kia and Hyundai cars are among the most popular among Vietnamese consumers. It is fair to say that Korean companies are top of mind with Vietnamese consumers, whether due to their long-time presence in Vietnam, their reputation for quality, or simply good marketing.
The Korean presence in Vietnam goes beyond consumer product brands, with companies such as POSCO (steel), Seoul Semiconductor, Shinhan (banking) and Hanwha (insurance), to name a few. Food processing, agribusiness, and engineering are key areas of focus for Korean companies, beyond IT and manufacturing. The Vietnam Chamber of Commerce and Industry estimated that Korean companies have provided jobs for more than 700,000 Vietnamese people.
The Korea-Vietnam Free Trade Agreement taking effect in late 2015 is certainly one factor driving continued robust investment, and the removal of tariffs has been a boon for Korean and Vietnamese companies alike. Vietnam is now Korea’s third largest export market, while Korea is the sixth largest export market for Vietnamese products.
Apart from strong FDI flows from Korean companies, one area where VinaCapital has seen growing-and significant-interest is in foreign indirect investment (FII) from Korean investors, that is, participation in funds that invest in Vietnam, and purchase listed or private equity, or real estate. Vietnam has attracted greater attention from the international business media, and a larger number of investors from Korea and elsewhere are keen to participate in the country’s compelling growth story.
Recently, VinaCapital signed an agreement with Shinhan BNP Paribas Asset Management, one of Korea’s leading investment firms, to manage a Vietnam equity fund for investors in Korea. Modeled on our successful Forum One – VCG Partners Vietnam Fund, this open-ended product will enable Korean investors to participate in the Vietnamese stock market via a fund that employs a bottom-up, active investment approach to selecting stocks. Our team knows the companies in which they invest – they spend a large amount of time on the road, visiting companies and meeting with management to gain a full understanding of the businesses. Such an approach – which would be extraordinarily difficult for a Korean company to replicate on their own – means that Korean investors will have exposure to stocks that have been thoroughly vetted. It is an approach that has worked well thus far, with our VVF fund outperforming the VN Index by a solid margin.
Beyond our relationship with Shinhan, we have also met with other Korean companies regarding investment in asset classes such as real estate and private equity. Real estate continues to thrive in Vietnam, in both the commercial and residential sectors. Whether it is newly built condominiums and villas, or operating assets such as office towers and hotels, Vietnam’s property market continues to record strong yields – provided an investor knows how to navigate this traditionally difficult sector. Private equity transactions are where VinaCapital sees some of the most compelling investment cases over the next few years. Again, the need for a local partner who has a developed network and experience is paramount for successful returns.
We fully expect Korean interest in Vietnam to remain strong, even without the benefit of the Trans-Pacific Partnership. Apart from the previously mentioned Korea-Vietnam Free Trade Agreement, Vietnam is party to a number of other trade pacts, such as with the European Union, Russia, and the ASEAN Economic Community. Vietnam continues to offer companies from South Korea and elsewhere access to a relatively low cost workforce and an increasingly affluent population of more than 90 million. While investors from other countries appear to be just “discovering” Vietnam’s growth potential, Korean investors have recognized this fact for some time already, and as a result will have a competitive advantage in this dynamic market. The two countries have a close relationship that will only become stronger in the years ahead.