- Vietnam has started to profit from a diversion of trade from China, but not in a big way yet, according to Bill Stoops, chief investment officer of Dragon Capital.
- Firms have likely been limited by the logistical constraints of relocating and building new facilities in Vietnam, but Vietnamese industries with some spare capacity have begun to see new export orders "flooding" in, Stoops said.
- While investors can't directly buy into the trade beneficiary theme because few benefiting exporters are listed on Vietnam's stock exchange, there is still a "very strong" case for the country's shares, according to Stoops.
As the ongoing U.S.-China trade war threatens to dent exports from the world's two largest economies, analysts have projected that other countries may see Chinese and American demand diverted their way.
"It's a bit early for Vietnam to be benefiting in a big way from trade wars," Bill Stoops, the chief investment officer of asset management company Dragon Capital, told CNBC on Wednesday.
The Southeast Asian nation has been touted as a possible winner in the U.S.-China trade war because of its low cost of manufacturing. Reports indicate that some companies have begun shifting production out of China to avoid tariffs imposed by America.
Vietnam will likely benefit from those adjusted supply chains for a long time, according to Rob Koepp, network director of the Economist Corporate Network.
"It is now set to be kind of a China 2.0, for various reasons, and yeah, it's going to be benefiting and that's going to be long term," he told CNBC on Thursday.
While firms have likely been limited by the logistical constraints of relocating and building new facilities in Vietnam, the country has begun to see new orders "flooding" into its existing industries that have some capacity for increased production, Stoops said.
"We are already starting to see big orders, big export orders flowing, out of nowhere, into the seafood, and the furniture and the garment industry," Stoops told CNBC's Street Signs. "I think this is a harbinger of things to come, as people start to divert business away from China."
"It hasn't happened yet, but it's definitely in the works, and we're starting to see straws in the wind with all these new export orders," he added.
Investors cannot directly buy into the trade substitution theme because few exporters in the benefiting sectors are listed on Vietnam's stock exchange, but there is still a "very strong" case for Vietnamese shares, Stoop said.
"For Dragon Capital, it's still all about playing the domestic economy," he said.
Vietnam's companies have good earnings growth and are trading at a price-to-earnings ratio of around 12 times, according to Stoop, who said that's lower than in neighboring countries.
Corporate governance is improving and the country has political stability, cheap wages and "perfect demographics," he said.
The "turbulent state" of markets meant that the privatization of state-owned enterprises and the listing of companies came to "a bit of a halt" last year, Stoop said. Still, he projected that investors can look forward to more corporate reform in the second and third quarters of 2019.
Vietnam unseated Singapore as Southeast Asia's top grossing market for initial public offerings in 2018.
"Remember, the government has a continuous need for money to help fund its budget deficit," he said. "It has philosophically realized that it is good for the economy to get (state-owned enterprises) off the economy's back."