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0:00
When Trump was elected, I was one of the ones saying, "Don't worry, he's not going to target Vietnam." And initially, I looked really stupid, you know, when this 46% number came out. This is more of a geopolitical story. What do you need to be successful in AI? You need a bit of math and you need a bit of algorithmic kind of programming skills. And Vietnam, we have both of these skills here to be [music] very successful in AI. There is a misconception that Vietnam is
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kind of the same as China 20 years ago. Both China and Vietnam have [music] pursued the East Asian development model that Japan, Korea, Taiwan all used to become rich. This is the only proven way for a country to get wealthy in a relatively short period of time. And you probably have a lot of friends back home, family 20 years later still wondering why Mike is still living in because all they can see online aside from what we send them through text messages and family emails is is really
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oh you know GDP growth is growing or maybe travel is now more accessible. A new hotel opened in Vietnam and that's that's what grabs the attentions or like uh AirPods are now made in Vietnam. >> What is the biggest misconception of all of that? you know, those headlines though is, and I don't mean it in a bad way, I mean also in a good way. Is there something more behind Vietnam that the world should know about? Like what are some big sticking points that you wish
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people really knew about this country? Okay. >> That would get them more excited or even just more knowledgeable about what's going on here. >> Okay. So, I think in if I understood correctly, embedded in your question, I see two sub themes. One is kind of like how do you tell your friends of why you live here? And to me it's very straightforward. I think this is probably the one of the best places in the world to live right now. I mean especially for me I like warm weather
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you know um I can't think of anywhere else in the world that is interesting and dynamic and what you see is a lot more interesting you know really high level interesting type people being attracted to come here. So that's one component. Um, with respect to kind of the second point that you were alluding to, um, I think there is a misconception of, uh, that Vietnam is kind of the same as China 20 years ago. >> There's some things that are similar. There's some things that are not the
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same, aside from all the cultural things. Uh, and that's of course nuanced. But, um, okay. So both China and Vietnam um uh have pursued what people call loosely call uh the East Asian development model. China not quite as intensely as Vietnam. The East Asian development model is the approach the strategy that uh Japan uh Korea Thai Taiwan all use to become rich. Okay. So the East Asian development model has slightly different flavors in different countries. Uh it's basically a
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three-step kind of model, economic growth model. The first step is agricultural reforms. So you increase the productivity of your farming and agriculture sector to the point that you now have surpluses that you can export to other countries. You take those surpluses, the next step is called financial repression. Sounds bad, but it's actually not as bad as it sounds. What financial repression means is that when you're a saver and you deposit money in the bank, usually the bank pays
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you the interest rates a little bit too low. So, for example, in Japan and China, that happened for a long time. And the reason why um the government sort of encourages the interest rate to be a little bit too low is because they want to take those uh surpluses and channel them into manufacturing exports. So, that's kind of the three-part chain. What's different in Vietnam is we haven't really had this financial repression part and that's because if you imagine we've had so much FDI
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capital that's coming in that we have more than enough capital to fund the industrialization of the c of the country. So we haven't had a situation like in Japan and and uh and China where the interest rates that the banks pay are basically too low. So we don't have this financial repression component but the other part is all pretty much the same. This is the only proven way for a country to get wealthy in a relatively short period of time. There's no other
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model like we're very optimistic about India. We think the prospects of India are very good but India is not doing the East Asian development model. So India's population growth and the you know urbanization etc will take that country up to a certain point but it will never really break out of the middle income trap. If you want to break out of the middle income trap, the only realistic way to do it for a country like Vietnam is to follow the East Asian development
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model. And thankfully, that is what they're doing. We haven't needed to do financial repression. Financial repression means that um you you take the country's savings and resources and you channel it into manufacturing. So, normal people in like Japan or China, they didn't earn as much interest on their bank account. And the reason why is because the government wanted to take that money and give it to the manufacturers. We haven't had to do that in Vietnam. That's a good thing. Well,
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Japan followed exactly this classic uh East Asian development model. So, you boost the productivity of the agriculture. You know, when people deposit their money in the bank, they get an artificially low savings rate uh and then they take the government kind of encourages the money to go into the manufacturing sector. Uh Japan followed that pattern exactly. China uh had something a little bit different in that they did part of what Japan did, but they also had some FDI come in.
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>> So, China at the peak, the FDI was probably called around 3 or 4% of GDP. And what Vietnam has done is they've just taken that FDI and like taken it up to another level. So, the FDI here at the peak right now it's about 5%. So, it's already higher than China was at their peak. And the peak in Vietnam FDI was around called around 8 or 9% of GDP. Huge numbers. And that's why with so much capital coming in u the banks have not needed to do this financial repression uh that happened a lot in
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Japan and it happened a little bit in China as well. This was actually derived from what was known as the American system under Hamilton. Kind of a little bit of a similar you know vein there. And the what the east Asian development model is about first and foremost is exporting uh products. So that's why people will notice in the uh in the west that they have a lot of me made in Vietnam products. >> It's also about um improving the uh technical uh um complexity of products
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over time. So you'll see more and more complicated things uh getting made here. And there's a few other aspects of this East Asian development model. Um so there's some similarity between uh China and Vietnam in that respect. The big thing that China uh did that we haven't done here in Vietnam, China pursued what's called the Gershorn growth model. Um Gershorn was an economics professor at Harvard a Russian professor and G Gershorn had the idea this is in the in
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the uh 40s and 50s as related to the Soviet Union that um if you're behind and you want to catch up quickly what you can do is really max out on um investment. So put all your country's resources into you know in in this case of Soviet Union it was like building factories of course in China partially building factories but it was the whole story of um you know infrastructure and all kinds of real estate and that's why in of course in China you have the vacancy rate is like 25% and here it's
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like less than 5%. We didn't do that in Vietnam. So consumption as a percentage of GDP here is kind of 60s you know 60ish whereas in China it's like much lower. They're trying to get it up but it's much lower. And so one of the big differences between um Vietnam and uh and China is that they did this whole Gershorn approach and uh and we haven't really done that here. So >> um you touch upon an interesting point uh because uh my next question is related to GDP growth according to my
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notes here 10% GDP growth in 2026 >> is the target the government's target >> the target very ambitious I don't think any country has achieved that with the exception of perhaps China >> uh market >> in your view what has to go right >> in the best case scenario to actually >> make that happen what are the one or two things that >> Well, the biggest thing by far is that um Vietnam really benefited last year by having a huge inflow of Chinese tourists uh up over 40% last year and uh and huge
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exports to the US almost 30%. And by the way, the exports to the US were driven by 80% surge in laptops, electronics, this kind of stuff, right? So those two things will be hard to repeat. Those are kind of one-off type things. Um the tourism story is um a little bit nuanced because what it it masks that the domestic consumption in Vietnam last year in 2025 was actually fairly weak. Mhm. >> So if you look at the numbers at first glance, you'd see like real retail
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sales, that's retail sales stripping out the effect of inflation, uh growing around a 7% pace, used to grow at a sort of eight or 9% pace uh pre-COVID. So when you see it right at first glance, you'd say, well, that doesn't sound too bad. But actually, if you strip out that surge of tourists, then spending by local consumers last year was growing at about a 5% pace. >> And how does that compare to prior years? >> 8 9% pre-COVID. basically cut. >> Yeah. So really what happened is during
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co uh households depleted their savings >> and so they've been saving at an extraordinarily high rate since then >> which is the same with East Asian countries right now what I can understand at least. >> Yeah. Although those countries also have some demographic type issues as well. So, kind of what we're thinking is that um if you look at how elevated the pace of savings is, how long it's been happening, I'm thinking that like by the middle of this year, 2026, you should
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see consumers start to feel, you know, more comfortable to to start spending at a more, you know, normal pace. But to get the type of figures that the government is talking about, you'd need like a real because again, consumption is sort of over 60% of GDP. Do you think that's why infrastructure spending is such a big emphasis for the country right now? I forget the exact headlines, but it was something like >> the hundreds in the in the hundreds of infrastructure projects were like
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inaugurated on the same day. Some were going to take much longer than others, but other things like um I think it was December 19th, 2025, the first flight >> out of the new airport, you know, and we've been seeing this airport in the news for for years now. But actually, only for the first time recently did I actually watch a documentary about it and it was on it was on YouTube and it was done by a British YouTuber who talks all about large construction projects.
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That's literally all his YouTube videos about and his his >> and I thought I was geeky. I'm gonna send it I'm gonna send it to you actually because you will watch the whole thing. I guarantee you. And he talks about how there's like a competition, not publicly, but I mean there for sure is among the big Southeast Asian hubs and how Long Tan wants to be the hub. >> It's something like 100 million or 125 million capacity, >> which by the way, in case you didn't know, is like four or five times the
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current capacity of Saigon's airport, at least listed capacity. >> Um, and it's just enormous. It's actually larger than London Heathrow. Four times. >> Wow. Wow. Wow. Wow. >> I mean, Heathrow is very well, generally speaking, welldesigned for its time, >> but it's literally four times the acreage. >> That's amazing. >> So, you know, we've read on the headlines for the last 5 years about how there's like that red dust everywhere. >> So, luckily that's more or less over now,
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>> but it was such a massive area. It is a massive area that it tells you about the ambition, >> right? Right. >> Of the country, too. And it makes me think like in order to hit these goals, they they need a lot of things to happen including that area. >> Yeah, infrastructure will be really key. Um to a nerdy economist like me, we always couch things in terms of percent of GDP. >> So in the past, u they were spending call it around five or 6% of GDP. They're trying to get that up to 10% of GDP.
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>> If you look at what happened last year, infrastructure spending was up almost 440 uh%. However, what's interesting is uh and that also gets back to your uh question about the 10% GDP growth target for uh 2026. Uh 40% increase in infrastructure spending by the government. But actually, if you look at construction activity in Vietnam was only up around 9%. Why is that? Well, because there's a latency, you know, from the time you sign the check to the time that you actually start digging the
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hole and this kind of stuff. So another factor that will help to boost the economy GDP growth uh this year is that all this money that was dispersed will actually be you know constructed this year actually go into acquiring the land you know building the the projects this kind of stuff. >> Yeah. What what do you do investors bring that question up because I mean they can only work on past historical like content and reports about >> let's just focus on infrastructure
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first. Well, and what they're also working on is they've heard this promise over and over like the airport for years. And so one of the things we have to convince them is no, it's actually happening right now. Yeah. >> And is it actually happening? >> Yeah, it is actually happening. >> Okay. And what's the difference this time in in your view? >> Okay. So, it's a really great question. Um, one of the things that I talk about a lot uh when you talk about all the
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great things going on in Vietnam is we are one of the only countries in the world um that has very positive demographics. uh we're still in the middle of a very positive demographics that probably has about another 10 years to go. >> Um urbanization about 40% of the people live in the major cities. So these two factors will be driving this the structural growth of the country >> for about another 10 years. >> So I think there's a growing recognition among when you meet policy makers in the
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government these are quite smart people. I mean there's a lot of Harvard you know Kennedy school type people and all this kind of stuff. So, I think there's a recognition that they've got about a 10-year window in which they need to really get busy um if they want to break out of the middle income trap. And so, I think that's why there's a lot more intense focus on this kind of >> So, it's almost like if you miss this window, >> it's >> No, it's not like >> it is.
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>> Oh, so if if they do miss this window or we miss this window, that's it. >> So, the demographics, you know, it's a you can see the chart. It's like up up up and then it's >> So when when you say miss this window, what happens if the window's missed? >> You either become Malaysia or you become Taiwan. >> Vietnam Taiwan is within Vietnam's grasp. >> It's right there. >> Yeah. >> I mean that's completely feasible for this country. >> Um that's so cool. I mean, you know,
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it's so interconnect to this country, too. I think when I think of infrastructure, there's two essentially mega cities and and and 40% of the population more or less within these two >> and and it's huge. It's 40 million people among between most of those those two tier one cities more or less. And uh >> and yet no proper ring road around both, you know, >> no proper >> no metro, no >> the the highspeed rail I'm not really clear on. But if you think about just
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the benefit of having a highway that goes because right now when you when you the FDI the factory, there's only certain pockets where they can really easily transport the goods and this kind of stuff. If you have a proper north south highway, now you can locate factories like all over the place and there's pools of workers everywhere. So >> yeah, where do you feel within this whole ecosystem of growth is the most vulnerable that both policy makers, private sector, FDI investors should
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should be aware of? >> When I say vulnerable, I and and you can probably guess what I'm about to say. It doesn't mean that that's a bad thing. It's just something that you really need to look out for. >> You could flip it around and say that's where the most upside possibility is. >> Riskiest. >> Yeah. Well, high risk, high reward. Yeah. >> Okay. So I sometimes get criticized for having this view and that you know it's naive because we have examples in Asia of you know Indonesia, Thailand 97 big
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blowups. I don't think there's any possibility of that type of thing happening here. I think the risk for Vietnam is and I've kind of alluded to that with my answer on the um the the middle income trap is that they underperform. So it's kind of an opportunity risk. So you should be you know you should become Taiwan and you don't. So, so I I don't view that as a risk in the sense of like something could blow up, but it's a risk that you don't perform, you know, what you should
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>> just wasted potential. >> Just wasted potential. And on a related um u kind of topic, there's been two pieces of research that came out uh recently, literally in the last couple months. And one of them is that um what economists call total factor productivity, TFP, is pretty poor in Vietnam. So you could look at that in a negative way, you know, and say, hey, all of our growth is coming basically from foreign capital coming in and population growth, this kind of stuff.
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Or you can say, well, there's an enormous potential to inc improve productivity. You know, a country Vietnam's uh situation, if you look historically, really should be having something like 3 4% a year productivity growth. So that means even you don't get new capital, even you don't get new population, you grow 3% just from kind of doing things more efficient. What is it right now? >> It's basically zero. >> So, >> and on a related before you go on, I'm sorry. On a related, there was another
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piece of research that came out. Uh this was from uh so the first one's from the IMF and the second one is from RMIT. Um >> they did a really interesting study where they were looking at what economists call spillovers from FDI into the local economy. Like how much are we actually how much knowledge are we getting from the FDI companies that we're implementing in the local economy, >> right? And here again, they found like it's not it's not really happening that that that well.
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>> So, I guess a good way to frame it is like I actually just had a conversation with one of our former staff who is like working at a family business doing logistics right? >> And he was basically explaining how um logistics spending as a 17% is very high. It's very high. >> And you have all these stories of the truck coming back empty and you know go only one way. there's there's not enough like you could say digitization to optimize that that load >> uh the roads while they're there. either
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large enough or direct enough to facilitate. I mean, even as from a person living in Ho Chi Min, one of the things that consistently kind of makes me think there's so much opportunity here is just connecting the bridge between certain districts. Sure. Sure. >> And instead you have to go kind of like all around to so my question is why haven't why hasn't anyone done it before? >> 17% it sounds so high relative to the wealth that you see in this country too.
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So it's it's essentially bursting by the seams, right? Why hasn't it been done before? >> I will answer your question with a broader answer >> and that I get asked a lot by foreign investors. Why hasn't this happened? Why, you know, oh, now the government is trying to do these reforms to, you know, address productivity. Well, why didn't that happen before? >> And the answer is that the growth has been so amazing here for so many years, you know, that's all you needed to do is
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just ride the tide, you know, >> so it was almost overlooked, but now it's almost >> unsustainable. I mean, I think that's normal. you you um you've had this amazing uh yeah tide I guess is for lack of a better word it's just taken you along and now we can see like 10 years later where it's going to start you know rolling over >> so in a in a sense it's a little bit reactive you could argue but the next 10 years is very proactive and it's moving very quickly to to get to that level okay
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>> so far this has not really wre havoc on the global markets but for me I think this is the number one risk for global stock markets right Um, Mike, I only have a couple questions left and then my last signature question that I always ask. I'll save it for last >> and it this is one that not only investors and analysts are are looking at, but day-to-day consumers, all the young people especially listening to today's podcast, which is real estate, >> uh, real estate the last year has been
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going bonkers. I think >> maybe up 30% or something, >> something crazy. And, uh, >> people argue it's a factor of currency. It's a factor of just supply, right? Um yet in your recent reports and offline we've discussed high level and let's deep dive into it. You actually expect supply to increase. >> Yeah. >> But prices to not stabilize >> or stabilize at least >> which is very unusual. >> Which is unusual. So what's driving that kind of your position on that and and
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what do you think that means for the lives of everyday Vietnamese people the next 10 years? >> Yes. When we talk about the real estate market, um, in every segment of the economy, there's always like, you know, think about the Partos law, 8020. You know, there's the 80% that's kind of the real thing, and there's always some little quirky thing off to the side. Um, I don't want to sort of dismiss or discount this phenomenon of the empty, you know, high-end apartments, but this
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is not like the real economy. >> It's not a major thing to look at. >> I mean, this is like talking about Bitcoin or something, you know, it's not really the bulk of what we have to think about is, you know, units. um for uh a working, you know, husband and wife that's maybe uh 40 minutes from uh you know, downtown. This is the real market and this market is like extremely vibrant. Yeah. >> Your comment about Bitcoin just snuck it in there. [laughter] I and we don't have
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enough time to talk about that's an entire new podcast I think and we might actually have to invite you very soon after this is and I'll just say it because I I think people are also looking at that especially from a asset diversification right >> uh view as a Vietnamese because you can buy Bitcoin you can buy crypto and it's it's actually fairly easy compared to other kind of assets what's your take on >> the only thing you need to know about Bitcoin and gold is that the US
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government is printing an enormous amount of money they're not calling it quantitative easing anymore they have some other uh it's called ATI active treasury issuance. So the the the in the US they're they're issuing borrowing in T bills 6 months 9 months instead of like issuing 10-year bonds. This is kind of like money printing really and as long as this is going on you will see the price of Bitcoin and gold. Now there I've noticed there's some sort of rotation back and forth between the two.
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You know, sometimes gold is going up and Bitcoin is flat and they for, you know, but if you think about the two as a package, there's an enormous amount of money printing. The debt, the government debt in the US >> is not payable. >> So if you look at what happened the last time the government debt was this high after World War II, the only way out is to just print money basically. Yeah. And that's what's happening. And that's why Bitcoin and gold prices are going up. In
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a way, this kind of benefits Vietnam in the sense that number one, the vigorous economy uh the US economy that's is our biggest export market and also when they print um dollars, it puts depreciation pressure on the dollar. So, it makes it easier to manage the USD VND exchange rate for the policy makers here. >> Well, I I just wanted to sneak in my personal view on it too with the Fed share expected to change in the next few months. People are saying the interest
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rate in the US will drop even further. Uh is that do you think that's >> not clear the consensus right now is for 50 basis points cuts in this year? >> Um to get a little bit geeky on the story what you saw in the last employment figures last Friday is there was a dip in the um in the unemployment rate slight dip that partially has to do with the immigration etc. Um there's a framework that Bridgewater uses you know which is the biggest hedge fund in the world. They have this four quadrant uh
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framework that I also really like. Um and you look at whether the growth GDP growth is accelerating, decelerating, whether the CPI is accelerating or decelerating and where the US is right now in this quarter is um what's called um disflation. This is when also called goldilocks. So inflation is coming down, growth is going up. growth in the US economy will surprise to the upside this year because of all the Trump tax cuts, all this kind of stuff. So, if growth is
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starting to really pick up, I don't know if it really makes sense for the Fed to be cutting rates. You know, it depends. There's a maybe Kevin Walsh will get the job, maybe Kevin Hassid, you know, who's been very vocal about having more rate cuts together with Steven Moran who's also pushing rate cuts. So, the consensus is 50 basis points. I would be surprised if we see more than that. Okay, >> so >> we should start a whole new podcast or show just [laughter] talking about this
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stuff like we can talk all day long. Unfortunately, we've way over time. This is way over an hour now. Mike, one last question I always ask all my guests. Um, we have you on the podcast today to share your expertise and viewpoints on uh, in this case the economy at large. Um, what's one topic that you want to know more about so that we can invite a guest and you can learn from them? Okay, if you ask me personally, uh you had my boss uh Brooke on and Sam who wrote this
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uh wonderful book about the Vietnam's economy. Actually, Sam also wrote a very wonderful book about the um Saigon stories and talking about he interviewed like a lot of people around town. This is a couple years ago. >> I would like to hear more of those uh details and unfortunately I haven't had enough time to actually read his book. So that would be interesting. I think for the audience um Hung buoy you know at Qualcomm and everything he's doing with AI would be really interesting. So
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that's my personal preference and my recommendation. >> I think you know when people ask me from like out of town like oh you know Vietnam's growing it's so cool it's exciting and and yeah you can read all you want online but then the people are the one making those all these things happen. And I think there's a bit of a underrated feature to Saigon in that uh yes there's massive growth at a macro level but who are the main actors driving that growth you know in the
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boardrooms making decisions and you know it gets me thinking of all these like global companies how >> um the CEOs of these Fortune 500 companies they're going back to headquarters a couple times a year like how do they present Vietnam? What do they say? and and and do those decisions like drip down to the economy that we live in every single day here and the answer is yes we see it changing every day and it's just really exciting to see so um Mike Kokalari everyone the chief
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economist of Vine Capital here in Vietnam uh one of the biggest funds private equity funds here in Vietnam they do a lot of things uh and Mike is one of the members contributing to that that mission at Vinnacap uh Mike it's such a pleasure uh it took us quite some time a decade in back to to meet. Uh so it's great to finally have you at the on the program and I look forward to welcoming you back at some point soon to to chat more about uh economic insights of Vietnam.
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>> Thank you very much for having me. >> Thank you so much. Uh see you guys next time. Bye-bye. [music]
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