Barings’ Soo-Hai Lim, manager of the Baring ASEAN Frontiers fund believes Vietnam and Sri Lanka look attractive and as a result he has increased exposure to Vietnam to three per cent and increased Sri Lanka from zero per cent to three per cent.
"Vietnam has a promising long-term outlook and has been very successful in attracting foreign direct investment over the last few years," said Lim.
"Following the cessation of the 20-year civil war, we think Sri Lanka is on course for a period of long-term economic expansion and represents another exciting opportunity."
"The reconstruction is beginning in earnest, as funds that were previously earmarked for defence spending are redirected. Growth should also come from the regeneration of tourism, one of the key strengths of Sri Lanka, and there are reports that hotel occupancy is already at, or near, full capacity."
Data from Financial Express shows there is only one IMA UT and OEIC defined fund which has exposure to Vietnam in its portfolio, this is the Franklin Templeton Templeton Frontier Markets fund, which has a 7.48 per cent weighting to the country.
Source: Financial Express Analytics
Further analysis shows there are five funds with exposure to Sri Lanka, the weightings and performances of these funds can be seen in the table and chart below:
| Fund | Area weighting for Sri Lanka |
| Aberdeen - Asia Pacific - Oct'89 |
1.40 |
| Aberdeen - Asia Pacific & Japan - Dec '81 |
1.10 |
| Aberdeen - Emerging Markets |
0.30 |
| CF Ruffer - Pacific - Jan 04 (Q193) |
11.00 |
| First State - Indian Subcontinent - Nov '06 |
6.30 |
Source: Financial Express Analytics
Source: Financial Express Analytics
Peter Elston, strategist at Aberdeen Asset Management Asia agrees Sri Lanka could be one to watch but isn't as positive on Vietnam.
"Sri Lanka should be seen more as a re-emerging market than as a frontier market. For the best part of thirty years the country's economic progress was hindered by a civil war which finally ended last year," he said.
"The country boasts a stock market and a handful of companies which are more than one hundred years old. Thus unlike Vietnam, many Sri Lankan companies have a long track record, if ones that have been impacted by the country's politics in recent decades. With the civil war over, we expect that the country can attract much needed foreign investment and begin to realise its enormous potential."
Chris Palmer, head of global emerging markets at Gartmore casts more doubt over Vietnam.
"I went to Vietnam a couple of years ago and felt that the market was not really ready for the kind of investment and interaction with the outside world. Companies were not really prepared for meetings, it was hard to get information and foreigners were restricted from entering the market and the only way you could get in was through a handful of funds," he explained.
"It is not the best environment for investors who are looking to freely move their money in and out and change their mind; it is a bit stricter in that regard."
Looking at valuations, Palmer said the Vietnamese market was very expensive back in 2007 but noted it had since fallen 50 per cent.
"It had a spectacular bubble in 2007 and has since come off and the currency has weakened as well because they have persistent inflation problems in Vietnam. The market is now more reasonably valued but I think investors are getting a better sense of what kind of depth these Vietnamese companies have," he said.
"The companies listed on the stock markets, are not unattractive, but they are businesses that are not growing spectacularly quickly because they tend to be dominated by the state and have not really reformed yet."
Mark Dampier, head of research at Hargreaves Lansdown said despite being one of the growth opportunity stories, Vietnam could still be a risky investment.
"In a world which is incredibly risk averse, Vietnam is the sort of area that drops, so if you are going to buy into that area you need to buy in with a 10-year plus view. The long-term trend is there but these markets can fall up to 80 per cent as well," he concluded.