Vietnam: Investors bet on Vietnam as valuations top SE Asia
HANOI – Vietnam stocks are pricier than their Southeast Asian peers for the first time in two years, and they are about to become more expensive.
“There is room to grow,” said Dominic Scriven, Ho Chi Minh City-based Chairman at Dragon Capital. “We are looking for 19% net growth for earnings next year,” as the economy expands and inflation remains stable, he said. The benchmark VN Index is trading 15.9 times earnings, compared with the MSCI South East Asia Index which is at 14.7. A 15% gain in the VN Index has led to its outperformance versus the MSCI Frontier Markets Index and the South East Asia benchmark gauge. The gauge rose 0.3% as of 9:34 am local time Tuesday.
The strong premium this year is “due to its good macroeconomic performance and political stability, while the rest of the region went through political transformations and tougher economic times,” said Attila Vajda, managing director at Project Asia Research and Consulting Pte in Ho Chi Minh City. Philippines President Rodrigo Duterte, elected earlier this year, has unnerved investors with his frequent outbursts against the US and violent war on drugs. Thailand’s economy has struggled since the army coup in 2014.
Economists predict Vietnam will be among the world’s fastest-growing economies in 2016 as it benefits from a manufacturing industry that has grown in importance over the years. Increased foreign-direct investment helped push the VN Index to an eight-year high of 688.89 on Oct. 19. The government aims for GDP growth of 6.7% next year, which will be the fastest pace since 2007. Profit at companies on the benchmark gauge are projected to grow 23% in the next 12 months, according to data compiled by Bloomberg.
Issues The market still faces the “hurdle of liquidity,” said Andy Ho, VinaCapital’s Chief Investment Officer. He recommends the government lift the foreign ownership limit in the banking sector as one way to boost the market liquidity. Last year, Vietnam allowed some industries to raise the foreign ownership limit to 100%from 49%, however, the cap for the banking sector still remains at 30%. Vietnam, which would have been the biggest beneficiary of the Trans-Pacific Partnership, may stand to lose the most as President-elect Trump prepares to quit the pact. “Since Vietnam’s economy is export driven and the US is a significant export market, it is likely that we need to see how the incoming Trump administration will finally deal with trade barriers,” said Vajda. The average daily turnover on the Ho Chi Minh City Stock Exchange – the main bourse – is just copy 09 million this year, compared with $768 million in Singapore, according to data compiled by Bloomberg.
It’s a “great time” to invest in Vietnam now as the government has accelerated the divestment process in major companies, VinaCapital’s Ho said.
The Vietnam government’s planned stake sales of major companies like Saigon Beer Alcohol Beverage Corp. and Hanoi Beer Alcohol Beverage Corp. next year is seen as “encouraging” for investors, according to Ho. “There are really good companies that the government is now allowing foreign companies, like institutional investors like ourselves, to put money into them,” he said.
State Capital Investment Corp, the government’s investment arm, raised about $500 million selling 5.4% of its stake in Vietnam Dairy Products JSC during the long-awaited Dec 12 sale.
Besides divestments, the government has also pushed companies to list shares on the exchange, which has made the stock market “more interesting”, according to Vajda.
The market will welcome the future listings of some major companies, including Vietnam Airlines Corp. and Vietnam National Textile and Garment Group.
Vietnam Airlines said in November that it would start trading in Unlisted Public Company Market, or UpCom, before Dec 31 and Vinatex, as the textile group is commonly known, plans to list 500 million shares on UpCom on the first week of January.
“Some new listings will attract enough excitement that the index can grow moderately, if there are no external trade shocks due to protectionist policies from the US,” said Vajda.