The Vietnamese Dong as an Alternative Investment
In Alternative Investments for an Increasingly Volatile Stock Market, we discussed exotic currencies as an alternative investment for the next bear market in stocks. In a follow-up article, we focused on the Iraqi Dinar as one of those currencies. But the Vietnamese dong is also fully qualified as an alternative investment.
As 2018 unfolds, the mainstream financial markets – stocks and bonds – are looking increasingly risky. Bond prices have been falling steadily in response to rising interest rates. Meanwhile, the stock market has been whipsawing back-and-forth, losing 400 points one day, and gaining 250 the next – only to repeat the cycle week in, week out.
No one knows for sure where the financial markets are going. But instability is never good for the financial markets. And that’s exactly what seems to be on the rise in recent months. Against that backdrop, it only makes sense to spread your investment wings, and move into alternative investments. Those are the types of assets that tend to do well when conventional investments are struggling.
Much like the Iraqi Dinar, the Vietnamese Dong is an exotic currency, and one that fully qualifies as a viable alternative investment. The reasons are very different from those that affect the Iraqi Dinar, but they’re well worth paying attention to nonetheless.
Currencies are a Political Diversification
Most experienced investors understand the necessity of diversification. You invest between different asset classes – typically stocks, bonds, and a small amount of cash. Within those three asset classes, you also diversify.
For example, with stocks, you may hold dozens of individual stocks, or a mutual fund or exchange traded fund (ETF) that holds hundreds of stocks. You might even invest in various sector funds, such as technology, healthcare and energy, as you look to take advantage of higher growth potential in specific industries. You may also invest in a bond portfolio, that not only holds different bond issues, but also various maturities to lower risk.
But it’s also important to diversify beyond traditional investments. In Alternative Investments for an Increasingly Volatile Stock Market we recommended that you expand into a greater cash position, real estate (including real estate investment trusts), precious metals and exotic currencies.
Cash and cash equivalents enable you to protect principal value in volatile markets. Real estate represents an entirely different asset class from stocks. Precious metals often run countercyclical to traditional investments. Exotic currencies, represent political diversification.
Why political diversification?
Just as you would diversify between stocks, or industry sectors, it also makes sense to diversify between countries. Currencies represent the countries that issue them, much the way stocks represent the companies that issue those. Having at least a small percentage of your portfolio invested in foreign countries, can be a wise decision.
One of the major reasons for this is that global recessions and contagions don’t affect all countries equally. A financial meltdown in the US or Europe may leave countries like Iraq and Vietnam relatively unaffected. This is true in part because those countries aren’t as dependent on the activity in the financial markets that the wealthier countries are. They can remain stable, despite turmoil in rich countries.
The currency of the issuing countries doesn’t have to take off for this play out either. All it needs to do is to remain stable, while currencies in rich countries, like the US, weaken. Rich countries often devalue their currencies as a way to stimulate the domestic economy.
Like the Iraqi Dinar, the Vietnamese Dong is Like a Seriously Undervalued Stock
The Vietnamese Dong is currently trading at about 22,700 per US Dollar. Practically speaking, the Dong is virtually worthless.
That’s not nearly as negative a situation as it seems at first glance.
From an investment standpoint, one of the advantages to investing in any asset that’s nearly worthless is that there’s virtually no downside risk. The currency has no tradable value outside of Vietnam, at least right now. But as conditions in Vietnam improve – and they’re improving right now – the currency will eventually come up in value.
When an asset or currency is practically worthless, it represents the kind of investment that can return a massive profit. We’re not talking about the kinds of double-digit returns – 10% to 15% – that stock market investors have come to expect. Because the dong is practically worthless, a very small investment could potentially rise by several times. In that environment, a $1,000 investment could eventually turn into $10,000.
The dong is seriously undervalued because Vietnam as a country is seriously undervalued.
This is true largely because of the association of Vietnam with decades of war, including the Vietnam War that finally ended in 1975. It’s also due to the country’s recent history as a communist dictatorship. Vietnam is one of four countries, along with China, Cuba and Laos, that remains a one party socialist state, officially espousing communism.
That situation continues today, but much like China, Vietnam has liberalized its economy, and is experiencing rapid economic growth. For example, in 2017, Vietnam’s economy was estimated at $215 billion. That’s more than 70% higher than the $138 billion it produced in 2012. That means the country has been experiencing double-digit economic growth for the past five years. And by at least one estimate, Vietnam’s economy is expected to be the 17th largest in the world by 2025.
The implications for the Vietnamese dong should be obvious. It’s just a question of time before economic growth in Vietnam translates into a suddenly stronger currency.
Vietnam’s Ace in the Hole: Global Wage Arbitrage
Vietnam lacks Iraq’s obvious oil wealth. But it has a major advantage of its own – low wages.
As globalization has swept the planet, multinational companies have been taking advantage of labor arbitrage.
This is the process of moving production and jobs from high wage countries, like the US and Europe, and into countries where wages are very low.
That kind of wage gap is begging to be exploited. What’s more, wages in Vietnam are even lower than they are in neighboring countries, like Thailand, Malaysia and the Philippines.
Global labor arbitrage means that companies will move from higher wage countries to lower wage countries, and Vietnam has some of the lowest wages in the world.
This is one of the primary reasons why the Vietnamese economy is one of the fastest growing in the world, and why it’s expected to join the ranks of the top 20 largest economies in the next decade.
In addition to the very low wage base, Vietnamese workers are developing a reputation for high productivity. This is not unlike previous experiences in countries like China, South Korea, and Taiwan. All started out as low-wage countries, which was gradually recognized and exploited by large multinational companies. As employment grew, so did national and individual wealth. In time, each of those countries became wealthy, industrialized nations.
Vietnam is heading on the same course. In the meantime, unusually low wages are providing a catalyst for the country’s exceptional growth rate.
And as a currency is a reflection of the country that issues it, as Vietnam’s wealth grows, so will the value of its currency. In many respects, it could be a better long-term play than the Iraqi Dinar, or virtually any other exotic currency.
How Best to Invest in Vietnamese Dong
Now is the time to take a position in the Vietnamese dong. The currency has an exchange rate of near zero, but the economy is taking off, similar to other fast growth Asian economies. It’s always best to buy into any asset when the value is low, and investors are looking in other directions. This is another asset class that could produce spectacular returns in the coming years.
That process may be accelerated in a global financial meltdown. As economic fortunes decline in places like the United States, Europe and Japan, businesses will look to move to areas where they can take advantage of lower prices. Vietnam is one of the prime countries in that regard. Its economic growth could take a serious leap forward, as the rest of the world struggles.
You can purchase and hold the currency directly, or buy it and hold it through a self-directed Individual Retirement Account. One way gives you the currency in your possession, the other holds it as a long-term investment.
Consider holding between 10% and 15% of your portfolio in alternative investments. This should be mostly precious metals, like gold and silver, and a small position in exotic currencies, like the Vietnamese Dong.
The global economy is changing fast, and that kind of portfolio allocation will put you in a solid position to take advantage of the shifts. As the saying goes, never keep all your eggs in one basket – that includes traditional investments like stocks and bonds. A little bit of gold, and a little bit of exotic currencies, can go a long way.
The Vietnamese dong represents less of the speculation, and more of a calculated risk – almost like a growth stock. The currency value is nearly worthless right now, but it is attached to a nation that’s clearly going places. With a population of nearly 100 million, Vietnam could become the next Japan or South Korea. Current trends support that projection.
The time to get into the Vietnamese dong is now. And Treasury Vault is where you can do it. We’re ready to help you get started.