Exxon Mobil Is Reportedly Investing in Vietnam — Should You?
On Monday, a Vietnamese newspaper — Thanh Nien – reported that the world’s largest energy company, Exxon Mobil (NYSE:XOM), plans on investing $20 billion in a gas-fired power complex along with Vietnam’s state-owned oil and gas company, PetroVietnam. The two companies will build two power plants with a capacity to generate 6,000-6,500 megawatts of power.
While the news has not yet been confirmed by Exxon Mobil itself, we learned the same day that the company sold $5.5 billion in senior notes, which is a big deal considering that the company only has $22.7 billion in debt outstanding. Intuitively speaking it would seem that Exxon Mobil will be using the proceeds from this debt offering in order to partially fund this endeavor in Vietnam.
Presuming this is true, I think investors can take away a lot from this investment. Exxon Mobil is usually very conservative with its investments, which suggests to me that the company sees a lot of opportunity not just in this particular project but in gas and in Vietnam more generally.
We already know the extent to which Exxon is interested in expanding into gas, as was evidenced by the company’s $41 billion purchase of XTO Energy in 2009. The company also has a recent history of investing in Vietnam given its offshore exploration — referenced in the above Thanh Nien article — off the coast of Da Nang.
Pending further details regarding this project we really don’t know what the market reaction will be, although more often than not the market tends to sell off upon hearing that a company such as Exxon Mobil is making such a large investment. But should we see a selloff, this will be an excellent buying opportunity. Exxon Mobil shares trade at just 13-times earnings versus the S&P 500, which trades at over 20-times earnings.
Furthermore the company has done an incredible job of creating long-term value, and we often find that there are good entry points into the stock when the company releases short-term news that indicates that it will show lower earnings in the next quarter, or that it will be using cash for an investment rather than its usually aggressive share repurchases.
With that in mind investors should look for a formal announcement that sheds light onto this investment, and barring anything unusual, I think that investors should continue to hold the stock or purchase more shares.
What is especially interesting is that the investment was made in what is typically viewed as a high-risk country: Vietnam. I think that investors can look at Exxon Mobil’s alleged investment plans and consider it to be a vote of confidence in Vietnam’s economy.
Vietnam is an “emerging market” (it might still be a “frontier market,” which would make it even riskier than an emerging-market country), although its stock market has hardly been trading like one. It is one of the best-performing stock markets year to date, already posting double digit returns. Furthermore, it is inexpensive using conventional valuation metrics relative to most developed markets, including the S&P 500.
American investors can get exposure to the Vietnamese stock market through the Market Vectors Vietnam ETF (NYSEARCA:VNM). While the fund is down nearly 20 percent since its 2009 inception it seems to have found a bottom, and it is up more than 15 percent this year.
According to Van Eck – the company that manages the fund — in the aggregate, the fund trades with a P/E ratio of just 11.6 and with a price-to-book value ratio of just 1.6. While one drawback is that the fund has over a third of its assets in financials, there seems to be a lot of opportunity in this ETF as well as in Vietnam.
Ultimately we can learn a lot about prudent, wealth-creating investments by following Exxon Mobil, which has done a phenomenal job for decades in creating value for shareholders. While this merits taking a position in Exxon Mobil shares it also means that we can find other opportunities by following the company’s lead.
With that in mind, I think that Vietnamese stocks are worth a closer look, and investors who can handle the risk and volatility of investing in an emerging market should consider taking a position in the Market Vectors Vietnam ETF.
Disclosure: Ben Kramer-Miller is long Exxon Mobil.