Transcription
[Music] So, uh, pleased to introduce our our chief economist, Michael Kokalari. Now, many of you read Michael's insights for the last, uh, several years. Um, we're very fortunate to have an economist with his experience with nearly 20 years in Vietnam and over 10 years at Vina Capital. Uh Michael is uh not only often right but is also willing to take non-conensus views which I think speaks very well about VA capital but also Mike's willingness uh to be out there when oftentimes he is early in still right. So I'm very privileged uh to hear Michael's views on the economy today and certainly the outlook for the future. Thank you. [Applause]
>> All right. Um, the theme for my presentation today is firing on all cylinders in 2026. So an engine has got you know cylinders or pistons. And the metaphor um that we're trying to make here the analogy to Vietnam's economy is that this year in 2025 the GDP growth is very strong. You probably know that already. Um, but it's really being driven mainly by two things. And the first thing is very strong exports to the US and the second thing is very strong tourist arrivals from China. Without those two things, the GDP growth would be much lower this year. And that's because the domestic consumption by local consumers is kind of weak. It's not like super weak, but it's a bit weak. So that cylinder is not really completely firing.
So what we're expecting for next year 2026 is another very strong year for GDP growth but much more balanced with all the cylinders uh bal you know rebalancing. So on this cartoon illustration that we've made, we also put um the reforms that we you know are very very important and how we're thinking about those reforms is kind of facilitating or lubricating this rebalancing of the economy that we see happening both in the short term and actually more importantly in the long term. So I'm going to talk more about that, you know, later in my presentation. You're going to hear a lot about it during today. Um, but this idea of the reforms kind of lubricating the rebalancing, I'll give you the punchline up front, which is that we think that the government reforms will ultimately add about two percentage points to Vietnam's long-term growth potential.
Now, we did our own analysis to come to that conclusion. Um, recently I was on a panel discussion with some very smart economists from the IMF. Um, they look at it in a more kind of technical way. They use what's called the DSGE, dynamic stochastic general equilibrium model, which is a more mathematical approach. But the important thing uh for you to know is that they also came to the conclusion that the reforms would add something like two percentage points to the long-term uh growth.
Now, let's but that having been said, let's just start by talking about what's happening right now, this year, and what we expect next year. I mentioned that the exports are very strong, particularly to the US, up almost 30% in nine months. This is a really huge number. We had really expected that the exports to the US were really going to roll over after the tariffs uh kicked in and maybe even start shrinking and that hasn't happened. So given that resilience of the exports, what we're expecting for next year is kind of a a normalization of our exports to the US. So not collapsing but just kind of coming back down to more kind of long-term normal type levels. So that's the first thing that we expect for next year.
The other thing is I mentioned that the domestic consumption is a bit weak. Actually when you look at this slide, the real retail sales growth, so this is retail sales stripping out inflation. The number doesn't look that bad. It's like a little bit below precoid levels. This number always used to grow around 8 n% pre-COVID. Um, but what you have to keep in mind is all those tourists that have been coming to foreign tourists are about 10% of uh of retail sales in Vietnam. So if you strip out all this extraordinarily inflow of tourists then spending by local consumers is growing at about a 5% pace. And actually um that number the 5% that's kind of also reflected in what what the the revenues that you would see of consumer companies. So like not super weak but modestly weak and I think my investment colleagues will talk more about that. So basically we expect kind of a normalization of both of those things. Um, high exports to kind of come back down to a normal type level and weak consumption to come up to a more normal type level. So this is the first reason those you can see on the top here those two things will kind of more or less neutralize each other.
But the other thing that we expect for next year is that there's uh as you probably know there's an enormous focus on infrastructure uh investment. There's a lot of the government is writing checks. There's a lot of money that's been dispersed this year. We've tried to represent that on this bottom chart uh where you see that you know over 40% surge in spending on infrastructure but it hasn't really filtered through to the economy yet. Uh the construction activity is hasn't reflected all of that spending. Why is that? Well, you just think about it, you know, when you embark on a big project, you know, maybe you have to get all the approvals, you might have to buy the land, import the construction material. So, there's kind of a latency or time delay from the time that the money is spent until it actually hits the economy. So those things mixed together, you know, the the delayed impact of this all the spending on infrastructure and the neutral of those two other factors. Uh this helps explain why we think the economy is going to be very strong uh next year.
What I'm going to do um before moving on. So that's our picture for 2026. Um, what I'm going to do before uh moving on to kind of substantiate the things our projections here is I'm going to show a few slides that um kind of give some evidence or some credence to the particularly the two things I just mentioned about the exports and the and the consumption. The first thing to note, this is a chart of the uh growth of real retail sales and you can see that it's never recovered to the precoid levels and keep in mind based on what I just said that this number is even high been boosted a little bit because of the all the tourists coming in. So the reason for this long story short is that during COVID households depleted their savings and so what's been happening in Vietnam is their incomes are growing growing six 7% or so but their savings has really skyrocketed. We estimate that the household savings rate in Vietnam is probably about 10 percentage points above precoid levels. Now, there's a couple different estimates of that figure floating around, but everyone kind of agrees that, you know, there's an extraordinarily high level of savings that's happening right now. Our analysis, if you look at this elevated savings rate and how long it's been going on, we think that by the middle of next year, households will have rebuilt enough of their savings to start to feel comfortable. Not all but all of their savings but enough that they start to feel comfortable to spend at kind of a more normal type pace. So that's one reason we expect consumption to recover next year and of course the stock market being up like crazy. The real estate market's doing pretty well. The reforms also help to build you know the consumer confidence. You mix all those things together and we're expecting that as I said you know we'll have a resumption of normal consumer spending next year.
We also expect the exports to be resilient and not to fall off the cliff. As I mentioned, um, what's happening there is a couple things. First, most important is that this is the same thing that's been happening in Vietnam for years, which is multinational companies moving the production of products here and in particularly moving the production of high-tech products. So, this is something from Tim Cook earlier this year. You know, they're going to make more MacBooks here. They're going to make more of like the Apple vision, all this complicated stuff. The Vietnam's exports of high- techch products, sorry, not high-tech, the phones are actually not doing that well, um, of laptops and electronics are up almost 5050% this year. This is an incredible number because it's not starting from a small base. We already export tons and tons of computers and all that kind of stuff and it's up like more than 40% this year on top of that. So this is the first factor that helps to explain why the exports have been very resilient.
The other thing to mention is that we've completely shrugged off the tariffs. So Don kind of alluded to that in his opening statement that what matters for the tariffs is what is Vietnam's level versus our uh competitors, countries like India and others. As long as Vietnam's tariffs are not more than 10% of of our competitors, it doesn't have any impact on us because we have all these other advantages of the low wages, etc., etc. So, we've seen no impact from the tariffs on the uh on exports and certainly not on FDI, which is still continuing to to to flow in. So, this has been kind of a non-issue. And the other reason why the exports to the US are very strong. So this is again the idea that as long as we don't the gap is not too big the Chinese were very happy uh with the numbers that were negotiated this 20% figure um the other phenomenon of why the exports um to the US are very strong is okay so for me as an American this is a little bit unfortunate topic to bring up but there is this phenomenon that people call the K-shaped economy so you think about the letter K it's got kind of an upper part and a lower part this this metaphor here is the upper part of the K. These are affluent consumers. These are consumers in the US who own their own home, maybe have money in the stock market, have money in the bank, you know, so now when the interest rates went up, they get higher interest income. So these are people probably baby boomers. Um these are people that are flourishing. And what you can see on this chart is that unfortunately, and I say unfortunately from kind of a social point of view, um during my lifetime, my adult lifetime, the proportion of spending by these top tier uh consumers in the US has gone from something like a third to like almost a half now. So again, it's unfortunate from a social point of view, but for us in Vietnam, thinking about our exports, we kind of only care about how the people on the top of the K are doing. And they're doing fabulous, as you probably know. Um, there's a lot of articles in the newspapers now about, you know, that the US economy, there's going to be recession, blah, blah, blah. And the reason that that's not happening is because the the the newspaper articles are focused on the people at the bottom of the K, which is really unfortunate. But there is more and more recognition now of this phenomenon. We started talking about this almost a year ago. Certainly at the beginning of the year, we were talking about this K-shaped economy and you see now that the others are starting to catch up to all the things that we were saying. These are some articles literally from the last couple weeks or a couple months. So this is one reason why our exports will remain resilient um to the US.
Um, you know, overall it's a pretty good picture. All the short-term metrics for Vietnam look pretty good. The only thing that kind of concerns us is that the level of FX reserves in Vietnam is fairly low. And this is one reason why the Vietnam Dong has depreciated by around 5% this year. There's different measures of how you can make the depreciation, but it's around 5%. And unfortunately, I expect another uh 5% depreciation next year as well. What's going on there? Well, part of it is the FX reserves that I just mentioned um next year. I actually believe that the US economy is going to be much more resilient than most people expect. Partially because of this K-shaped thing and also because of all the tax cuts that Trump's made. and you know that's not really nice that they're borrowing and spending but it does boost the economy. They've made some changes about the tax deductibility of R&D etc. That's a whole long story by itself but basically the US economy will be stronger than most people expect next year. The consensus right now is that the US dollar will go down next year. So please remember that I told you this right now the dollar is going to go up next year not down. Quite certain about that. Unfortunately, that will put more depreciation pressure on the Dong.
But the main thing as far as the Dong is concerned is that all the government stimulus that's happening is fabulous and it helps to explain why the stock market is up so much. Um, the thing is though, when you really step on the gas pedal hard, when you're really really stimulating your economy to the point that it's almost can't sort of absorb how quickly the stimulus is coming, kind of like that infrastructure story I mentioned before. If you look uh in hundreds of years in different countries in that kind of a situation there will often be kind of a release valve when there's so much stimulus coming into the economy. Typically the re the release valve is inflation. I'm not worried about inflation in Vietnam. However, the release valve it seems at the moment is kind of the currency. So that's something we're going to keep our eyes on.
Here's some other risks. Um I didn't put the geopolitical. I can talk about that in the Q&A if anyone's interested. Um, I'm not really worried about the uh about this topic of the geopolitical. Um, another thing that I'm not worried about is this whole trade war story. I expect this topic to kind of fade into the background over the next year. And I think that when we're at this conference next year, we won't really be talking about that. Now, why did I use this kind of cartoon of just sort of it quietly going away? Well, we made a prediction at the time that the tariffs were being negotiated that um you know when the 20% number came out. Yeah. You'll see like over time more carveouts, exemptions, special case blah blah blah. This came out uh yesterday. You can see here that you know they start talking about as Don mentioned products being exempted from tariffs. For me, this is a way uh for the Trump administration to kind of gradually back off this whole topic. Now, that might sound surprising what I'm saying because, you know, just a couple weeks ago, Trump was talking about like 100% tariffs and blah blah blah. Um, I my interpretation of that is I think about like an animal being in the corner or like maybe a puffer fish or something like that, you know, when it's really threatened and it tries to make itself look really big, you know, 100%, you know, but the reality is the Trump administration, they don't have the cards in the trade war. They don't have the upper hand. So remember Zalinsky came to the White House a couple months ago and they had this very contentious meeting where Trump kept saying, you know, you don't have the cards, you don't have the cards. In this case, it's the US that does not have the upper hand in the trade war. Mainly for two reasons. The first is the amount of products that are imported to the US is just too big. You can't reshore the production of this. you can't make America great like literally in a couple months. Um, the over 90% of consumer electronics are imported to the US. We have here you know you can see the Vietnam and the and the China put together very very high proportions of you know certain products. You know if you put tariffs on that if you really aggressively put tariffs on that then what's going to happen is you know your voters, you know Trump basically got elected because of inflation if we just be really blunt and honest. And uh what you're going to do is you're going to alienate your voters. Okay. So there is an increasing recognition. This is from the economist uh magazine I think this week this week or last week uh talking about this idea that uh so that's one phenomenon because you you know the the source of we're limited you can't just move the production. But the thing that a lot of people are talking about of course is this whole rare earth story that I mentioned Zinsky before. You may know that the flow of arms to Ukraine, they're kind of trying to limit it or dampen it. Part of the reason why is because the US stockpile of a lot of weapons is running low. And that in turn is because they can't get the rarest with this whole China type story. Uh China absolutely dominates uh rare earths as I you probably know that already. Um one other topic and there's a lot more we can talk about this this 40% trans shipment you might heard about that's not important. I can talk about that in the Q&A if anyone wants. Um, let me just say one more thing about this topic uh before we move on. If you go to Google and you type in my name, Kokalari, and you type in like Trump tariff, something like that, um, a Wikipedia page will pop up. And this is I think that's titled like uh Trump 2.0 or trade war 2.0 or something like that. Anyhow, I don't know how Wikipedia type stuff works. I don't have any, you know, experience with that. But what you'll see in that Wikipedia page is that work that we did here at Venina Capital is referenced. That's one of the references they used to write this uh you know view about how to look at the trade war. So international economists you know they're taking seriously our ideas. They seem to agree with it. Um, and that's yeah I think that's probably enough on that topic. Uh we'll we'll come to we'll have a Q&A session.
Um, okay. The next thing that I have that I put on the risk slides, we weren't quite clear how to think about this, uh, it's a kind of risk, but it's sort of a more of a long-term type risk, and that is that Vietnam does not yet have an investment grade credit rating. So, all the very ambitious, uh, infrastructure spending, that's going to require like borrowing US dollars if you want to do highspeed rail, nuclear, this kind of stuff. So I think what you'll see next year is a lot more focus on getting an in getting up to an investment grade credit rating. This is a presentation that Fitch did a couple of months ago that the circling is ours. We did that. Um, I'll tell you the long story uh short on this thing which is that um, Vietnam meets many or maybe even most of the quantitative criteria to get a credit rating upgrade. What we're missing is qualitative uh t things like for example you know making monetary policy in the state bank of Vietnam work in kind of a little bit more orthodox way. This is a topic people call the plumbing making the plumbing in the monetary system here a little bit more similar to other countries things like that policy stability. So those are things that need to be addressed by uh reforms and we think they will because when the urgency of this comes up, you know, they're going to have to focus on this and on the topic of reforms uh now we come to the Dymoy uh 2.0 reforms.
Um, I will mention upfront that uh I I'm the one that actually coined the phrase Dymoy 2.0 but I came up with it five years ago. You can look on our website some old webinars that Eric and I did way back when and frankly speaking I was wrong. You know if you're too early then you're wrong because um at that time there was the idea of reform sort of floating around but there wasn't really the um the urgency or the intensity and that's what's different now. They're very serious about addressing making the government more uh effective and they're very serious about making it a more of a level playing field between the s soes and the private sector as Don talked about in his intro.
Um, I'll tell you two things that I think about myself when I think about the reforms and the reason that I have these two little mental frames in my mind is because there's so much information coming out on this topic. It's almost like drinking from a fire hose. Every day is some more announcements, more decree, more goals. So, I think there's two things that are really important to know. And the first Don really covered great already, which is that there's a major mindset shift going on within this civil service. When we go and meet senior people in the government, they have much more of an urgent sense of urgency than they ever did in the past. They really listen to our suggestions. They take notes and you know, all the things that Don kind of alluded to. So, this is the first thing. It's a major mindset shift. And the second thing that I think is out of a framework to think about all this is that they're setting some really big ambitious goals. This is a book um some of you may remember you're maybe around my age but this is a book that was very popular in uh the 80s and the 90s and it was written by a business school professor at Stanford uh which is where I also went to business school and the idea of this book was that companies can flourish and I think it works for countries as well but companies can flourish by setting very big ambitious goals without necessarily knowing all the precise details of how they're going to get there. And so I think this is another mindset we should have in mind when we think about the reforms. You know, I've worked in Vietnam for almost 20 years. I've lived here over almost 20 years now. And um what I've seen over and over in this society is that when you know when everyone kind of aligns and points in the same direction, by the way, it's an unpleasant topic, but you know, to the sand thing this morning, think about winning the war, for example. When when the whole society points in a particular direction, they're going to achieve most if not all of the goals that they're out to do. So I think these are the two things that I think about.
There's a third thing which is for you as investors that's very important to know about. I mentioned in my very beginning of my presentation the idea of the rebalancing and so here there's a different type of rebalancing happening over the long term and that is a rebalancing between the FDI driven growth and the domestic driven growth. FDI today right now is the country's most important economic growth driver. There's nothing else that's close. Foreign capital is the most important driver for Vietnam right now. What we expect to happen as more of the reforms kick in is again a kind of rebalancing where we're we're driving, you know, sort of equally by both the domestic private sector and by the foreign uh investment. Why is that important to you as investors? And Don kind of alluded to this already in his opening remarks. Um, you know, when Samsung sets up a factory here and manufactures phones, that's great. It boosts employment. It helps lift people, you know, into the middle class. They can afford to send their kids to school, etc., etc. Um, but when you think about the economic value that's created by producing smartphones here, part of that economic value gets shipped back to Korea, right? So, when you have a more balanced uh approach to the economy, more economic value will be captured here. But critically for you as investors and Don really nailed it in his opening there'll be a lot more investment opportunities because you know the Samsung phone story is fabulous but as investors we can only get sort of indirect exposure to that, you know invest in things that the consumers that like you know that have a job there etc etc so especially on the private equity side there's going to be a lot more investment opportunities going forward um so these are really the three things that I think about about the reform reforms, major mindset shift, big audacious goals and rebalancing of the private and the and the u private se domestic private sector and the FDI. So that opens up a lot more investment opportunities. That's the big picture. I'm going to talk just a little bit about some of the details and we're going to of course cover that in much more depth uh you know today.
These are the so-called four pillars that have been discussed a lot. Uh you may have seen that in the newspaper if you follow Vietnam. They've actually added a few more uh to this recently, but uh today, as Eric mentioned, we're going to have uh different presentations and breakout sessions to go in more depth about these the four pillars. Um, for the government reforms, I think the most impactful thing that's happened so far is they're really pushing more power and spending to the local level. And when you think about it, this was one of the big successes of China's development strategies. A lot of things were happening at the local level before this merger of the provinces. The province size in Vietnam was subscale as you can see on this chart. Um, the other thing to note is that this idea of spending of send pushing more spending to the local level was kind of already happening. So in a way we can think about the reforms as a continuation of some things that were already happening.
Um, similarly on the private sector uh reforms, you can see here that there's been a big move over the years to push more of Vietnam's investment to the to the domestic private sector. So here too, we can think about this as sort of a continuation of things that were already happening. Um, lots of focus on infrastructure spending. Lots of the idea here is to get up to 10% of GDP of infrastructure spending comparable to what places like the Philippines and China were doing when they were really pumping on infrastructure. Um, lots of important projects happening.
Why is all this happening now? So, I mentioned I was too early when I came up with this term 2.0 five years ago. First of all I think there is a really good recognition within the government there you those of that have attended these conferences or followed my work in the past you'll notice that what's conspicuously absent is I one slide I always love to include is about the demographics so I don't I don't have that in in this year's presentation um but the the story about the demographics in Vietnam is basically we have about another 10 years of really good strong demographics but after that it's going to roll over and demograph graphics will switch from something that's pushing up pushing us up to pushing us down. The technocrats in Vietnam are very smart. They know this. They know we have kind of a window of opportunity to really put some measures in to put us on a higher orbit in terms of the GDP growth. That's one thing. And of course, you know, with everything going on, there's a real recognition of the vulnerability of the country to be overly exposed to the global economy. So those are the two main things. The other thing is I think that there's a more of a recognition of the you know the main Achilles heel in Vietnam is that we're getting all this FDI but it's not really boosting productivity and the reason for that is because what people call spillover sometimes they call it linkages backwards linkages forward linkages so we've got all this fabulous uh FDI investment and it hasn't really spilled over enough into the domestic economy and helped to spawn new industries here. So our hope is that the reforms and that's part of the intention will help to solve um this problem.
Okay. Um, the very last topic that I'm going to cover today is something very very close to my heart. I'm very very passionate about and that is about um artificial intelligence AI in Vietnam. Now over the last year uh there's been two what I for me I consider very important uh developments on the topic of AI and Vietnam. And the first is um if you go to Amazon and you look up this book um this is the number one book in AI in the world right now. And it was written by a Vietnamese woman who grew up in the countryside here. uh she got a scholarship to study uh computer science at Stanford which is where I also studied computer science and now she's this super big person in the field and people are saying like hey is there something in the water in Vietnam because they start to notice like there's a lot of people in this field um you know both VQ and Vietnamese that studied overseas u that are really making an impact on the field so I think you know it's this is one thing that kind of caught a lot of attention among foreigners people foreigners asking There's a very very famous guy, his name is Richard Sutton. His people reached out to me and said, "Hey, we want to come and visit Vietnam, you know, to see what's going on here in the AI scene." And the other thing in AI, people are very focused on what they call the labs, like the frontier labs where the real nitty-gritty research is being done. Um, there's a great lab here, uh, that's doing really leading edge work. Uh, it's on something called edge computing. So, leading edge edge computing. Um, it was also set up by another Stanford uh guy and um that lab was recently acquired by earlier this year was acquired by Qualcomm. Qualcomm bought this lab not because of like some charity or whatever be but because the work that they're doing is really fabulous and they wanted to be able to tap in uh to that. So these uh for me these are two things that I think were really significant in AI as regards to Vietnam.
Um, for myself personally I will tell you that I have been spending like all of my weekends and all of my mornings and late nights really delving very very deep into this whole topic. I mean it's super interesting you know for me as a kind of a nerdy geeky guy. Um, I'm personally I'm doing um a program um at Stanford which is called the professional AI engineering uh program. Takes about a year and this program is meant for people like me that study computer science kind of a long time ago and they want to get up to speed uh you know up to basically it's pretty hard. We're studying at about a PhD level. I've got fabulous classmates the CTO of NASA all kinds of Google, Amazon etc people. And the reason I'm mentioning that is because I'm actually now in a better position to tell you in a more nuanced way why I think Vietnam is uniquely uh suited for AI. So I think what I am expecting is a lot of fabulous businesses to develop here um particularly that can then export or sell products to the rest of the world. So, I want to tell you um give you a little bit more nuanced insight. You know, I don't want it to be like just typical big mouth American guy saying, you know, hey, it's going to be great here. Everything's going to be great. You know, Americans, you got to divide everything Americans say by two because they overexaggerate. Maybe I do a little bit, too. So, let me just tell you a little bit more precisely why I think it's going to do really well here. First of all, we have very strong STEM ability here. You you already know that if you know anything about Vietnam. This is a math class that I taught years ago at the National University. Um, I don't know if you can see it. It's a bit whimsical, but I typed something into chat GPT here. I said, "What are the countries in the world that you will see the most uh trees have a number painted on them, you know, on the main boulevards or whatever, and it just pops up right away." Oh, Vietnam. You can see trees got numbers on them all over the place. So for me that's kind of like a loosey goosey way to think about you know we really have a leftbrain orientation here.
Um, however what I want to do now I'm gonna end on a slide um where I talk it's a bit a bit geeky but let me explain why Vietnam for AI to be successful in AI you know you think left brain stem you know actually within the left brain there's different parts of your left brain the same for the right brain you think of the right brain like music literature this kind of stuff so within the left brain there's mathematical skill being able to solve equations okay who's good at that Russian Russians are really good at it. French are really good at that. But actually the honest truth is nothing really in AI has come out of those countries. So that's one type of left right left brain ability. The other type of left brain ability is a kind of algorithmic thinking you know thinking about what's how do you optimize things put things in the right order this kind of stuff and actually Indians are really really good at computer programming. Think about all the outsourcing you know but here too nothing in AI not much has really come out of India yet. And and I think this is my theory, you know, from having really studying this thing like crazy over the last almost a year now. Um, is that you need in AI a confluence of both of these type of skills. You need them both together to be good at AI. What are the countries that have both together? China obviously. Um, the US, I mean there's so many people in the US. We kind of everything but we also have very good algorithmic. There's something in the US uh that was called scientific management or tailorism. It's like almost 100 years old. So we have that kind of thinking already. Um, Vietnam Vietnam really has both sides of this what's required. Um, and that's why I think you see so many people punching above their weight that are from here. And here's an interesting one too by the way Sri Lanka for whatever reason they also have a lot of people compared to the size of the country you know that are prominent in this field. So they kind of have this mixture of both sides. So um this is the concrete reason why I think uh the AI is going to do very well here. We're it won't surprise you that we're having a lot of talks internally about different ideas and projects. And so if there's anyone that's interested in investing into this, please definitely come to see me uh come to see Trung on our venture capital fund. If you want to make 10 times your money, I mean this is the type of opportunities that are here uh now in Vietnam.
Um, and I'm gonna end on this little cartoon. My intern made this in one hour. That's AI. Okay, let's open it up for questions either about uh the economy or anything on AI. You can ask me a lot of technical like why doesn't my chat GPT work or maybe I'll be around at lunchtime or whatever. Um, but yeah, please just go ahead. Let's open it for questions. I know I talk fast. That's couldn't be someone must have some question.
>> Yeah. Yeah. Yeah.
>> Yeah.
>> Yes. Yeah.
>> Yeah.
>> Do you think that these supply chain will be established in Vietnam?
>> You were exactly asking the right question.
>> Michael, can you please repeat the question?
>> Uh, so the Oh, sorry. It's a the supply chains to support the, you know, what about the It's one thing to say we're going to make all the stuff here, but what about the supply chain? If you look on our website um during the first trade war we actually published a series of reports on this um what we did is we went back and we looked at the evolution of u the Thailand Singapore Mexico it's the same pattern which is that the multinationals they see it is in their own interest to build out the local supply chains the tertiary so they're not doing this out of charity they think like okay we want to put our FDI here, but we want to get more local suppliers. So, the pattern that we've seen that you know we studied, you've seen over and over is that the multinationals come in and they do things like investing in local suppliers, secounding their management to local suppliers. Um, we when we were doing this research, we look back at um what was going on in Singapore in the 1980s. People have a very exalted view of Singapore, which they should. I mean, it's amazing what they've accomplished. But if you look back at these kind of Harvard Business School case studies back in the 80s, actually Motorola and other multinationals, they thought their local suppliers were terrible. So they took all these extra efforts to build the capability. We've already seen that starting to happen here with Apple in particular. Uh some of the products, there was an earbud thing that they started making here a couple years ago. When when Apple made the earbud, what they did is they set up a factory in China and also in Vietnam at the same time. What they had done previous to that is they perfected the production in China. Then they cut and paste it here. This time what they did is they said why don't we run the two of them together so we can start building the capability. Actually on this most recent batch of products they're just making them here only before doing anything in China. So there's a concerted effort by the multinationals out of their own self-interest to build the supply chain capability here. It's a really good question. Yeah. Yeah. Yeah. Sorry. or if you shout it out, I can repeat it.
>> Yeah.
>> Yeah.
>> Um, Okay. So, basically, long story short, um what the Trump administration has done, uh which is not great from like a long-term point of view, but basically what they've done is they've made it so that if you build a factory or you do R&D, it used to be that you had to write off that expenditure over 30 years. and they said you can just write it off all at once. So what we're seeing already and it's not just data centers is a boom in investment. So that boom in investment means that capital that would have fled the country is going to stay more capitals. You think about the strat the whole strategy of the um of the trade war stuff. I don't want to go down that rabbit hole of saying like Trump's playing 4D chess, you know, he's not and it's he's very erratic and it's not good for the world. But if you think about there's a kind of genius in all of this which is that um if you simultaneously tell the rest of the world like hey I can hit you with a stick anytime you want but if you build a factory here in the US I'm going to give you all these amazing benefits.
>> So this is what's going to attract uh money back into the into the US and that's why the dollar is going to go up next year. not huge. It'll probably go up by something like uh maybe four or five percent. But the point is it's not going to go down. And unfortunately for Vietnam point of view, that will put additional depreciation pressure on the dong. So, but it's a really good really good question. Yeah.
>> Thank you. Thank you very much. Uh thanks for a very nice interesting presentation. uh I don't know exactly in detail what happened last week with the bond uh market and how the stock exchange collapsed but how much should we be wor worried about corporate governance for this uh reforms and and what you're talking about the next 2.0 over to
>> right right
>> to realize.
>> So for me that one slide about like setting very ambitious goals is the main thing that I keep in mind and for the rest of the details I think you're better off um my local colleagues will be better to to answer that question.
>> Hi um you mentioned that Vietnam has only 10 years of good demographics left. Can you expand a little bit on what you mean by that and what are the repercussions?
>> That's a great question. Oh, good one. Sorry. And question two, um, is, you know, this is a fantastic growth story, right? Any investor listening to this is like, oh my gosh, what would you consider is the biggest risk to derail this story?
>> Yeah, this is a great question. Um, so on the demographics, um, there's lots of different ways of looking at demographics. Um, what we look at uh this there was a guy from Harvard that that came up with this is the idea that um if you look at um and and this kind of reflects that my background is more of like an engineer than a traditional economist. If you look at in any country, if you look at the number of people that are around the age of 45 to 50, just absolute number there, nothing fancy. If you take that to sum up sum it up, if that number is going up, you're on a secular upturn. Why? Because you have more and more people that are at the peak of the earnings and also the spending in their life. It's a very very reliable indicator. And when that number absolute number rolls over, then you're on the other side of it. So I'll ask you a question back. Um, when do you think for example that that number peaked in uh for example Japan or Korea?
>> Yeah. Yeah.
>> So in Japan it peaked precisely at 1990. That's when the bubble collapsed. In China peaked at around 2015. By the way, this is what we often get to ask the question like, "Oh, you have all this FDI coming in, but what if China, sorry, what if Korea someday because half is like from Korea and Japan. What if someday they decide that they don't like Vietnam? They don't have any choice. Their demographics have rolled over and you've seen a surge of investment into Vietnam, particularly starting from Korea, starting from around 2015. Um, really good question. Your the other point you made, um, the short-term risk would be the dong. um they need to really get busy with this credit rating because I don't think it's and I think they'll there'll be more recognition of that next year of you know how so the government's finances look okay but you're going to need foreign currency so they'll really need to get busy with that with that um and overall I would say um it's just um okay in all the years that I've lived here there's been something I forget what they call it in the World Bank or it's like when you're the poster child for the the the development agencies. They all come here and they all tell you like, "Wow, you're so smart. You're so great." And then you lose your motivation to follow through. And I saw that during the time that I was here. Um, and that's a little bit my worry is complacency. So I don't see any risk of any blow up. There's no like you're not going to be Indonesia like lose it. But it what could happen is that instead of achieving our potential, we subachieve it because they lose the will or the momentum. Um, and that's Don is much better to talk about that than than I am.
>> We're already over time, but we have one more.
>> No, I think we have one more.
>> One more question over here.
>> I saw one more. Please.
>> Um, hi. I wanted to ask about the 28% um growth in exports to the US and if you break down why that occurred, how much of that was basically pulled forward because of tariffs versus did do we plant these questions? This is a very good question. Um, okay. In the beginning of the year it was pull forward and in fact what's interesting is many people including myself you know did not expect Vietnam was going to get targeted by Trump. So initially when the 46% the the liberation day initially I looked really stupid because I was like one of the ones saying don't worry it's not going to happen. Right? So what was h what happened at that time is there was no pull forward and then all of a sudden boom it just shot up. Right? What we thought was going to happen is once the actual tariffs kicked in that it would roll over and we'd go negative and that hasn't happened. And it's literally because of the high-tech stuff. I mean, this is the number one. All the other garments, you know, okay, furniture, maybe the tariffs on furniture are kind of extra, whatever, but the it's really a story about the high-tech exports. This is it. It's it's really not more complicated than that. I'm getting told.
>> I'm not saying you got to go home. Okay.
>> Well, I will be around.
>> Thank you very much, Michael. [Music]