Frontier market Vietnam has the right strategy to make it a foreign direct investment hotspot, according to one strategist.

The Vietnamese government has recognized that “instability isn’t going to attract foreign direct investors” Andy Ho, chief investment officer at VinaCapital Vietnam Opportunity Fund, told CNBC’s “Squawk Box Europe” Wednesday.

“Over the last five to 10 years, they have created a foundation of stability where the FX (foreign exchange), the legal infrastructure, the inflation, the interest rates — all of that is stable,” he explained.

Vietnam is among Asia’s best performing stock markets, though volatility persists. April 2018 marked both its record high and its worst month in two years. Nonetheless, the Vietnam Index in Ho Chi Minh City has risen 42 percent in the last 12 months.

The International Monetary Fund sees growth for Vietnam at 6.6 percent in 2018, well above the emerging market average of 4.9 percent.

But, emerging markets across the board are threatened by investors drawing their cash back to the U.S. in anticipation of higher yields as interest rates rise.

Vietnam’s Communist Party-led government has been in place since the mid-1970s following the country’s reunification after its brutal north/south war. Ho highlighted the presence of technology firms Intel and Samsung in the country as examples of the government realizing that foreign direct investment is creating wealth.

The creation of jobs, crucial given the country’s youth population bulge, as well as the growth of urban areas provides an investment opportunity according to Ho. “This is where we invest, because as people move into the city, they’re going to want basic goods and services,” he added.

Opportunities lie in sectors such as banks, education and pharmaceuticals, he added.

Strong foreign capital inflows — of which direct investment is roughly $20 billion annually — stabilize the currency and enables the management of inflation and interest rates, Maarten-Jan Bakkum, a senior strategist for emerging markets at NN Investment, said in a note on Tuesday.

“The consumption boom that results from this is currently one of the strongest in the entire emerging world,” he said.

“Over the last twenty years, Vietnamese exports have grown five times faster than the average growth in the emerging world and twice as fast as the export growth in China, the country known as the export champion,” Bakkum explained.

For Ho, the country’s promising export potential is boosted by its vast coastline, which pertains to the creation of ports connecting to markets including southern China.

But, the Southeast Asian country does face headwinds. While Vietnam’s current labor cost is one third that of China, “the biggest concern over the next five to 10 years is wage inflation,” Ho said.

He added that the country was a “diversification play (as) it is volatile, higher risk,” but it “delivers higher return.”