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KWR Book Reviews
Kenneth Pounds, Vietnam: The New Asian Dragon An investment Guide to Vietnam, (New York: Castlebury Press, 2007)
Reviewed by Dale Smith
To many Americans, Vietnam invokes the 20th Century wars fought in that nation, first by the French, then the U.S. After the Communist takeover of South Vietnam, which unified the country, the state controlled all aspects of the economy. Starting in 1986, however, the Party realized it had to institute economic reforms. While a large part of the economy remains under state control, and Vietnam still has a one-party government, there is a greater effort towards openness and "equitization", which is the Vietnamese government's term for privatization. Kenneth Pound's highly recommended book is a useful and interesting reminder to investors that the investment climate in Vietnam is similar to China in many ways, with many of the same problems and opportunities, but important differences. At 129 pages, Pounds has done himself proud, with a well-written, succinct book that may be profitably read by asset mangers, analysts, and individual investors with an interest this Asian Tiger cub. It is a pity that similar books have not been written about other, smaller emerging market countries.
Pounds starts off his book with a short, but useful summary of the history of Vietnam. He begins the investment portion by comparing Vietnam with other Asian countries, such as China and Thailand. While remarking that the latter is probably 50 years ahead of the former, the author points out that Vietnam has started to catch up. According to a recent Bloomberg column by Andy Mukherjee, the number of people who are undernourished has been cut by half over the past three decades. The median age of Vietnam's population is 26, and literacy is high. Vietnam's population is actually larger than Thailand's, and Vietnamese wages are lower than Thailand and China. While poverty is a problem, it is apparently less of a social problem than in China. Vietnamese proven oil reserves are comparable to Thailand's, and state-run PetroVietnam estimates that more than 25 trillion cubic feet of natural gas lies under the ocean off the southern coast of Vietnam. Currently, Vietnam, the third-largest exporter of crude oil, has to import finished petroleum products, but the first refinery in the country, owned by PetroVietnam, is scheduled to begin processing 145,000 barrels of crude per day in 2009. Christopher Woods wrote in the October 11th issue of Greed and Fear (a Hong Kong based newsletter published by CLSA) that in sharp contrast to China, where the government owns the land, 90% of Vietnamese households have formal "land-use rights certificates", a key prerequisite to increased borrowing, as people now have clear title to property. Such borrowing can be used to start businesses or purchase a larger home, spurring growth. US and European banks and insurance companies evidently like what they see, as they are making an increasing number of investments in a Vietnam where banking is still in its infancy, as the country, with a population of 85 million, only has six million bank accounts.
Chapter Two succinctly summarizes the early 2007 structure of Vietnamese industries and the major players. An important part of the analysis includes which industries have the greatest state control, efforts at privatization of State-Owned Enterprises, and the export situation. Chapter Three surveys public equity markets in Vietnam, which consists of two stock exchanges, one in Hanoi, and another, more active market in Ho Chi Min City. The Ho Chi Min City Securities Trading Center, which opened in July 2000, was re-named the Ho Chi Min Stock Exchange after the book appeared. In 2006 alone, market capitalization of listed companies rose from $1 billion to $14 billion. Volume has likewise exploded, but some of this volume is due to banks loaning up to 60% of the share value, a dangerous practice that the government is trying to curb. The Hanoi Securities Trading Center, which opened in 2005, lists smaller companies, and is much less transparent, as information on the exchange's web site is not translated from Vietnamese. Before the end of 2006, many shares were traded on the informal OTC market, but the government forced listings by giving a tax break to companies that list on the two stock exchanges by the end of 2006. There is also a small corporate bond market, which suffers from problems with clearing and a lack of a primary dealer market. Investors who wish to bid in bond auctions must comply with several regulations, with institutions paying a 28% tax on interest (individuals pay nothing). Liquidity of bond and stock markets is also a concern to foreign investors, as it can dry up quickly in a crisis. As yet there are evidently no stock options trading, even in the over the counter market.
Chapter Four surveys the 20 Vietnamese companies that had over $1 billion market capitalization in March 2007. International banks are increasingly interested in covering Vietnamese equities or bonds, but local research may only be obtained by foreigners if they are customers of local brokerage firms. After the market appreciation of the past several years, these blue chips are trading at large multiples of price to earnings and revenues, and look overvalued to many foreign investors. Of the 20 firms surveyed, there are three each in utilities, industrial, transportation, and import/export; two in the bank, pharmaceutical and consumer goods groups; and one in the technology, chemical, communications, property, and transportation groups. Each description includes the company's web site, when available.
Chapter Five surveys the risks of investing in Vietnam, which are common to other emerging markets, such as China. As in China, Vietnam suffers to a certain extent to overinvestment in capital projects, and the Vietnamese government has held down the value of the dong against major currencies. The government, as in China, attempts to hold down the currency through purchase of dollars and raising bank reserve requirements. While Vietnam's government is similar to that of China, there has not yet been any event such as the 1989 Tiananmen Square atrocity that continues to haunt China. Such an event would be felt even more strongly in Vietnam than China, given the relative sizes of the countries. The government does face increasing criticism of its policies, which is somewhat mitigated by the lack of migration from the less developed parts of the country to the more rapidly growing coastal areas and an awareness of the problems China faces. Corruption in state-owned enterprises and large construction and infrastructure projects is a problem in Vietnam, as in other emerging markets. Like China, the government is keenly aware that this corruption weakens it in the eyes of the population. China's hard/soft power is evident in the South China Sea in competition with Vietnam over natural resources and territorial claims. Cross-border trafficking continues to be a problem in the "Golden Triangle", as is bird flu. The Mekong River is also a source of international problems, as China has decided to dam part of the Mekong in China, in spite of protests from both Cambodia and Vietnam. The latter two countries have urged China, so far in vain, to help create a multinational framework to manage development along the river.
Chapter Five also lists ways individual and institutional investors can invest in Vietnam, from Vietnamese companies that list overseas to exchange-traded funds. The author lists thirteen locally managed funds or fund groups, and seven foreign managed funds. The list is rounded out by two foreign-managed funds marketed to Vietnamese investors and listed on Vietnamese stock exchanges, and two foreign listed holding companies.
Chapter Seven is a short guide to the tax situation in Vietnam, and Chapter Eight lists foreign companies who do business in Vietnam. Chapters Nine to Twelve are short lists of web resources for stock and bond research, Vietnamese business news, government web sites, and general Asian-related business resources. Chapter Thirteen rounds out the book with information on setting up a business in Vietnam, living in Vietnam, and legal information.
Vietnam currently has an edge on China in labor costs and a lack of overhang from a 1989-style political crisis. In spite of this, there are risks involved for foreign investors, as the country still has an authoritarian government and is experiencing inflationary pressures, in common with other Southeast Asian countries. In addition, tensions with China over dams on the Mekong River and natural gas resources in the South China Sea bear watching. With per-capita income of US$723 last year, Vietnam still has a ways to go, but investors looking for an emerging market growth opportunity should read Pounds book, hopefully several times.
The author owns shares in one Vietnam-focused mutual fund and stock in a Hong Kong traded company which owns assets in Vietnam
Stewart Gordon, When Asia Was the World: Traveling Merchants, Scholars, Warriors, and Monks Who Created the "Riches of the East" (Philadelphia, PA.: De Capo Press, 2008) Pages 228. $26.00
Reviewed by Scott B. MacDonald
Stewart Gordon, a Senior Research Scholar at the Center for South Asian Studies at the University of Michigan, has made a welcome contribution to Asian studies and indirectly, globalization. In his When Asia Was the World, he provides a collection of first hand views of individuals of a substantially interconnected and creative Asia. Covering a period of between 500 and 1500 CE, our adventurers - merchants, scholars, warriors and monks - "navigated oceans, traversed great deserts, and crossed the passes of the highest mountains in the world".
The fundamental thrust of When Asia Was the World is that the region stretching from China and Japan to the Middle East and North Africa had evolved into a very interconnected region, where trade and ideas flowed. This was in sharp contrast to the West, which was traumatized by the fall of Rome and the ensuing breakdown in civilization. While the Goths, Lombards, Visigoths, and Vandals slugged it out with each other over the carcass of the Roman Empire, Jews, Armenians, Gujaratis, Malays, Yemins, Tamils, Arabs and Chinese, were actively plying trade to great cities such as Baghdad, Reyy, Balk, Bukhara and Ghazri. Despite periodic upheaval from invading armies, the Asian world was "robust enough to survive most day-to-day or even century-to-century changes and disruptions." This allowed commerce, knowledge, and religion to flow throughout the region.
Gordon selected Xuanzang, a Chinese Buddhist monk, Ibn Fadlan, an Arab ambassador to the Bulgars, Ibn Sina, a scholar born in Bukhara (present-day Uzbekisten), Abraham bin Yiju, a Jewish spice merchant who traded pepper in the Indian Ocean and was originally from Tunisia, Ibn Battuta, an adventurer from Morocco who eventually made it to Beijing and back, Ma Huan, a Chinese sailor from Hangzhou who spoke and read Arabic and traveled the great Ming fleets of the fifteenth century, and Babur, the founder of the Moghul Empire that came to rule much of India. Each man provides a view into the Asian and linked worlds of the time.
Probably one of the most interesting was Ibn Battuta during 1325-1356 CE, considering the vast expanses he traveled. A master of court ceremony, the Moroccan was able to gain access to a king's court and become a point of attraction. Indeed, travelers like Ibn Battuta provided an important role of providing information about how other kings ruled, always valuable information for hard-pressed leaders. As Gordon noted: "Ibn Battuta's conversations with kings were, in a sense, the management seminars of the day; Ibn Battuta was a particularly successful management consultant." He also became for nine years one of the chief judges for the Sultan of Delhi, and possibly made it to China, though this is disputed by scholars. He apparently lost his fortune to pirates on the Malabar Coast, had a pattern of short marriages and hasty departures, and by his early fifties made his way back to Morocco. Back in the homeland, he turned to the court, which provided him with support so that he could write his memoirs.
Ibn Battuta at the end of his days was one reflection of the cosmopolitan Islamic world. As Gordon described Ibn Battuta and others like him: "These men were more than mere functionaries. Like Ibn Battuta, they carried news, gossip, and descriptions of one court to another. They were the vital mechanism by which courts across the Great Asian world came to be so similar in symbols, ceremony, and kingly culture. They were the agents by which a king, whether Muslim or not, might learn how much he would benefit by adopting this common culture." Gordon is describing one part of what we have come to call globalization. In a sense, there was a quiet spread of ideas about how society was governed and by what symbols were to play an important role.
The last portrait is that of Tome Pires, a Portuguese apothecary and government scribe, who came to Asia in the early sixteenth century. His memoir, covering only his first five years in Asia, reflects Europe's expansion in Asia. In the 1490s Vasco da Gama and a Portuguese fleet rounded the Cape of Good Hope, forever changing the socio-economic and trade patterns in greater Asia. The Portuguese were stronger and more advanced militarily than much of Asia. As Gordon notes: "During ceaseless wars in the Mediterranean and the decades of exploration of the West African coast, crews of ships had learned how to fire regularly, rapidly, and fairly accurately."
In addition, the Portuguese traders were better organized. This point was very important in understanding European success. As Gordon aptly commented: "Unlike any other traders in the Asian maritime world, the Portuguese in Asia had the backing of a king, self-confidence as Christians in a heathen world, and the beginnings of bureaucratic loyalty among court appointees." This was mirrored by the Portuguese approach, which varied greatly from the Chinese. Gordon states: "Instead of generalized dominance through diplomacy, and recognition of local kings, their strategy was, in fact, much closer to Genghis Khan: Seize the trading cities and the important resources, destroy resistance, tax trade, and make conquest trade for itself." Although Pires' personal adventure did not end well - he died on a failed diplomatic mission to China - the European pattern of penetration in Asia ushered in the end of that region's socio-economic dominance, in a gradual, creeping fashion.
Stewart Gordon's When Asia Was the World is an enjoyable and worthwhile read and highly recommended for anyone that enjoys history, Asian studies, and travel.
Axworthy, Michael, The Sword of Persia: Nader Shah, from Tribal Warrior to Conquering Tyrant (New York: I.B. Tauris, 2006)
Reviewed by Scott B. MacDonald
Michael Axworthy has written a memorable biography of Nader Shah, who the ruler of Persia from 1736 to 1747. Most notably Nader Shah was probably central to Persia's survival after the collapse of the corrupt and increasingly ineffectual Safavid dynasty. As Axworthy states: "Without Nader Shah, Iran (then known in the West as Persia) would have suffered the same fate that befell Poland in the eighteenth century - partial or complete partition between her neighbors: the Afghans, the Russians and the Ottoman Turks."
Axworthy comes to his study of Nader Shah through his academic and professional service. He was the Head of the Iran Section, Foreign and Commonwealth Office from 1998 to 2000 and currently teaches Middle East History at Exeter University. From this background, he has penned what can only be described as a compelling read. We are taken along Nader Shah's life story from obscure beginnings to ruthless intrigue, military success, splendor and riches; to error, terror, frustration, ferocious cruelty, mental derangement and death - in an historical time and place largely unknown to most Western readers.
Nader Shah was born sometime in August 1695 in the north-eastern part of Persia, the province of Khorason. His father was a herdsman of the Afshar tribe. The world into which he was born was one of weak central authority. The ruling Safavids were in decline, the neighboring Afghans eager to raid a declining, yet still wealthy Persia, and to the west were the Ottomans, often willing and able to encroach on their fellow Muslim empire, which was Shiite as opposed to their Sunni faith. Further to the east were the Moghuls, lords of India with loose control over Afghanistan. Rounding out the picture were the Russians, making a steady march southwards around the Caspian Sea and the Caucasus Mountains.
Although the Safavids faced a changing world around them, including the growing might of European traders, their decline, at least from Axworthy's perspective, was more a deterioration in the quality of leadership coming from the ruling family. In particular, when not in the field, the ruling family tended toward excessive consumption of wine and the pleasures of the flesh in the harem. Axworth astutely notes of the situation: "When the hands on the levers of the state were feeble, the levers and the state itself also looked weak; but the levers worked well enough when returned to firm hands."
Nader Shah was the man with the firm hands who was to wrest the lever of the state from the Safavids, upon which he was able to defeat the Afghans, wage a number of campaigns on various insurgent tribes, and re-establish the border with the Ottomans on much more favorable basis. In 1739 he also marched across Afghanistan and soundly defeated the Moghuls. The sack of Delhi and ensuing massacre marked Nader Shah's apex.
Following his conquest of the Moghuls, Nader Shah's mental health deteriorated and palace intrigue increasingly impinged on his attention. In particular, he appears to have suffered a significant deterioration in his ability to act decisively following the blinding of his eldest son, Reza Ooli, who he suspected of an assassination plot that came close to succeeding. The last year of his reign was marked by Nader Shah seeking to squeeze as much wealth from his subjects as possible to feed his military machine, the murder of those who were slow in sharing their wealth, and dealing with rebellious tribes. It became increasingly apparent that his wars were having a devastating effect on the Persian economy. He was finally killed by his own soldiers in 1747.
Nader Shah was one of history's more intriguing overachievers. He had a decidedly strong penchant for military strategy and was innovative in terms of reforms made to strengthen his armies. This was proven in over twenty battles; all but one of them victorious, defeating the Afghans, Ottomans and Moghuls. His many campaigns at one point established an empire that bordered Iraq, encompassing Iran, Afghanistan, Pakistan, parts of the Caucasus region, and parts of Central Asia. Persian power also extended into the Persian Gulf, including Oman. But Nader Shah was unable to convert military success into enduring political and economic success. As Axworthy notes: "…if his dynasty had endured and tempered military success with a little administrative wisdom (as some contemporaries believed they had reason to hope for from Reza Qoli, had he reigned), the growth of state structures, reform and modernization would necessarily have accompanied military expansion, as they did in France and Prussia, and other European states in the seventeenth and eighteenth centuries."
Axworthy hits the point about historical what-ifs with Nader Shah: "Much else might have followed: Persian dominance in the Islamic world, in the long term perhaps even removal of the Shi'a/Sunni schism and an uneasy parity with the West." Instead, Iranians remember him mostly for his cruelties of his latter years. Michael Axworthy has rendered a scholarly, well-researched and highly readable biography of Nader Shah, one of history's more intriguing characters.
Editor: Dr. Scott B. MacDonald, Sr. Consultant Website content © KWR International
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Contributing Writers to this Edition: Scott B. MacDonald, Darrel Whitten, Sergei Blagov, Kumar Amitav Chaliha, Jonathan Hopfner, Jim Letourneau and Finn Drouet Majlergaard
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