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TheStreet Open House

Vietnam Taps Foreign Military Aid in Dispute with China

Stocks in this article: MHVYFKWHIYBALMTRTN

HO CHI MINH CITY (TheStreet) -- Vietnam has had it with China. The Southeast Asian country has felt pushed around by its massive northern neighbor for centuries. Vietnam fought it off in 1979. Then in May China parked an oil rig in disputed waters off the Vietnamese coast.

China has the world's third most powerful military with 2.285 million active personnel, while Vietnam places 23 with just 412,000 people ready for war on a list by the NGO Global Fire Power. It will need help resisting China in case simmering tension between the two Communist governments ever boils over.

That would mean an opportunity for defense companies, and their stocks, in Japan and the United States.

Vietnam is now fine-tuning its already aggressive agnostic diplomacy (it eagerly makes friends with just about anyone) to look for military aid and aid shows early signs of coming through.

Read More: 7 Stocks Warren Buffett Is Selling in 2014

No one expects Vietnam to fight a war with China despite rumors in May. Both sides have too much at stake economically and pursuit of money dominates discussion in the Vietnamese financial center Ho Chi Minh City. But multinational defense contractors will win if Hanoi buys weapons systems just as a deterrent.

"They need the help if they want to build up militarily," says Ralf Matthaes, a 20-year Vietnam expatriate and owner of the business consultancy In-Focus. "I don't see there being a land war or anything like that, but you're going to have squabbles in the sea."

China's nemesis Japan activated a 2011 defense cooperation agreement with Vietnam in July to offer six used vessels and maritime security equipment worth $4.87 million. Japan has battled China diplomatically over disputed tracts of the East China Sea since 2012 when it nationalized a group of islets claimed by Beijing.

"Japan is definitely beefing up the Philippines and Vietnam precisely because all three have maritime disputes with China," says Carl Thayer, Vietnam expert and emeritus professor with the University of New South Wales in Australia. "Japan is very likely to offer increased assistance in the future."

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If that happens, that means a boon to the business of Japanese defense contractors Mitsubishi Heavy Industries (MHVYF) and Kawasaki Heavy Industries (KWHIY) as their government relaxes a historic ban on arms sales abroad.

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