The industrial powerhouses of Indonesia and Vietnam

Indonesia and Vietnam are Southeast Asian economies undergoing dramatic economic development. These economies are booming when most economies are seeing a recession in 2023.

Vietnam is becoming the manufacturing powerhouse of the world, as factories continue to move there, and it is benefiting from diversification of supply chain by multinational companies from all over the world. Instead of only producing cheap T shirts and sneakers, it is assembling electronics goods, and will even soon start assembling products for Apple. As factories continue to pop up like mushrooms in Vietnam, locals are integrated into the workforce and the global economy. The $300USD a month wage is a big uplift compared to working in small farms in the remote and rural areas.

Indonesia is benefiting from similar dynamics as Vietnam, but it is also an enabler of carbon zero thanks to its rich endowment of resources. Indonesia has one of the world’s biggest endowments of Nickel, and it is set to become a global centre for electric vehicle batteries. Huge conversion plants are being installed to convert surface layer Nickel and therefore allowing low-cost nickel to be processed into battery grade nickel. It is a low cost, and less carbon intensive technology. Electric vehicles and batteries makers are set to invest in Indonesia to bolster their nickel supply chain.

Bringing the Vietnam and Indonesia stories together, economic growth in both of these economies are driven by powerful and sustainable engine of industrialisation from low base:

• Economic reform making it easier to conduct business
• Infrastructure and manufacturing capex are attracted to these countries because of low cost of labour and resources
• Export is growing rapidly as factories and manufacturing plants are migrating to these economies
• Local’s incomes are rising, fuelling consumption

GDP/capita is likely to continue in the coming five to ten years from a low base of $3000USD and $4000USD per capita for Indonesia and Vietnam respectively. A great deal of investment in infrastructure is taking place to enable this economic miracle to continue.

Both economies are robust with inflation under control – as they did not stimulate much during the pandemic, government has undertaken reforms to fix the fiscal issues, so the economy is not indebted.

As a result, the economy is booming, it has a long way to go, and there are lots of great opportunities on offer. In Indonesia we own the best and most dominant retailer and very undervalued prime shopping mall assets. Both these names are growing rapidly as the aspirational youngsters enjoying higher incomes are clamouring for internationally branded goods. In Vietnam, we own a range of leading consumer facing businesses that are benefiting from rising incomes. At Ox Capital, we seek to own leaders or emerging leaders with secular growth thematics and are disciplined on valuation.

Dr Joseph Lai

Past performance is not a reliable indicator of future performance. For Performance of the Fund please see our performance page.