Snap quiz: Which developing communist-run nation in the Asia Pacific Rim has racked up the world’s second-fastest growth rate since 1990, modernized its rural economy, lifted millions of its people out of poverty, and become a magnet for foreign investment?

[Cue the buzzer sound] Wrong! It’s not China. Say hello to Vietnam.

That’s right, I’m referring to the very same “communist” country that embroiled the U.S. in a bitter Cold War-era proxy war from 1955 to 1975. Vietnam, once a byword in America for military quagmire and social division, is now a major trading partner with Uncle Sam and the rest of the world.

Rising geopolitical tensions spawned by the Russia-Ukraine war are spooking many investors away from overseas investment destinations such as Southeast Asia, but remember the old Wall Street adage: be greedy when others are fearful.

Below, I explain why Vietnam is an “Asian tiger” that’s about to roar. I also pinpoint the easiest and safest investment play on the country.

Overseas flashpoints…

To be sure, Vietnam is currently at loggerheads with China. As I write this, the two ancient antagonists are engaged in yet another round of squabbling over the rights to fishing and undersea oil drilling in the South China Sea.

In late March, a Vietnamese Fisheries Surveillance vessel and Chinese Coast Guard ship came within 10 meters of each other, triggering an international incident.

China is aggressively pushing its territorial disputes around the world. Notably, the authoritarian Chinese government has its eyes on the democratic island of Taiwan, which it wants to absorb into the mainland.

China’s long-sought goal of unification with independent Taiwan has neighboring countries on edge, which in turn is fueling greater defense spending in the region. Military spending, in turn, serves as an economic lubricant and jobs generator.

Beijing is miffed that Hanoi is holding fast to an oil exploration tract in the South China Sea. Exacerbating the confrontation are Hanoi’s recent overtures to Chinese rivals the U.S. and Japan.

China claims more than 90% of the South China Sea, but its neighbors beg to differ. Regardless, it’s likely that China and Vietnam will soon overcome these temporary sticking points and resume doing what these two “Marxist” countries like best: making money.

Asia’s next growth engine…

Emerging markets are poised for a rebound this year. We’ll probably see an increase in demand for foreign companies that are less affected by the volatile political and economic events in the U.S.

As erstwhile developing stars such as Brazil and Russia lose their footing, Vietnam is emerging as the Asian continent’s next growth engine. This spectacularly scenic country beckons investors who seek international diversification.

In a recent report, the International Monetary Fund stated: “Vietnam’s upbeat growth outlook is bucking the slowing trend elsewhere in Asia, with relatively subdued inflation that’s also an exception to the general rule in the region.”

The World Bank reported in March that Vietnam’s economy is on track to reach 6.3% year-over-year growth in 2023, compared to 5.2% for China and 2.3% for the globe.

Gross domestic product (GDP) of emerging and developing countries in Asia is expected to reach over 37.44 trillion U.S. dollars by 2027. This would be more than double the GDP from a decade earlier (see chart).

[Note: “ASEAN-5” refers to Indonesia, Malaysia, the Philippines, Singapore, and Thailand.]

The Vietnamese economy is increasingly integrated with multinational blue-chip giants based in the U.S. and Europe. Case in point: Vietnam’s fast-growing VietJet airline has inked several lucrative deals with Boeing (NYSE: BA), Raytheon Technologies (NYSE: RTX), and Airbus (OTC: EADSY) for passenger airplanes and aviation parts.

In a volatile global equity market in which investors are skittish, Vietnam offers an overlooked chance for long-term, market-beating growth.

Gucci-clad socialists…

As with China, Vietnam is a mercantile nation that’s only communist in name. With a population of more than 90 million, the country has generated a growth rate of about 7% per person since 1990, the world’s fastest behind only China.

As Vietnam continues to make infrastructure and industrial investments, it appears to be on course to sustain this growth rate, which puts it in the same league as South Korea and Taiwan.

Vietnam’s economy is nominally socialist but it’s becoming less dependent on a top-down command structure and state-subsidized conglomerates, and more tailored to free market forces. The government encourages economic competition among its 63 provinces, invests heavily in education and training, and launched several initiatives to foster innovation such as technology industrial parks.

At the same time, the government has started to acquire important positions in the United Nations and shown an interest in maintaining geopolitical stability. As China rattles its saber in hotly contested areas such as the South China Sea, the U.S. is paying closer attention to China’s increasingly nervous neighbors in Asia.

The Pentagon’s “Asian pivot” has put once ignored countries such as Vietnam into the spotlight, which entails the economic stimuli of additional foreign aid and weapons purchases. The U.S. government in recent years has lifted embargoes on lethal weapons purchases to Vietnam, opening the door for Boeing and other aerospace/defense behemoths to strike major deals.

Ride the Asian tiger…

As foreign firms and tourists flock to Vietnam, now’s the time to get in on the action.

The purest play is through the VanEck Vietnam ETF (VNM), the only exchange-traded fund exclusively focused on stocks of companies based in Vietnam.

With net assets of $522 million, VNM seeks to track the performance of the Market Vectors Vietnam Index. VNM offers exposure to publicly traded companies either based in Vietnam or with annual revenue that stems at least 50% from Vietnam.

The ETF’s portfolio of 42 holdings is well diversified among companies that span several industry sectors, with the highest weightings in real estate (29.75%); financial services (21.61%); consumer defensive (20.85%); basic materials (11.39%); and industrials (8.90%).

Several other Asian ETFs have struggled so far this year, but VanEck Vietnam has racked up a year-to-date daily total return of roughly 4.0%; the current yield is a modest 0.93%. The expense ratio is a reasonable 0.59%.

As commodity prices rise and global economic expansion remains on track, VNM provides both growth and a hedge against U.S.-based risks.

Editor’s Note: Are you hunting for high yields, but with mitigated risk? Consider our colleague Nathan Slaughter, chief investment strategist of High-Yield Investing.

As a high-yield expert, Nathan has devised a simple strategy that could help you generate a steady stream of cash, almost like clockwork. Click here for details.

John Persinos is the editorial director of Investing Daily.

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