Cheap valuations not tempting

Viet Capital Securities Company’s chief analyst Marc Diandji said Vietnamese market valuations were relatively cheap with price-to-earnings (P/E) at around 9.87. “The exchange rate risk is a top concern for foreign investors, making Vietnam market’s short-term outlook more risky,” Diandji told VIR.

Diandji said that over the last 12 months, the US dollar-Vietnamese dong black market rate had depreciated 10 per cent and foreign investors had to earn larger rewards to cover these losses if they wanted to invest in Vietnam.

“Vietnam will receive more foreign portfolio investment (FPI) capital once the macroeconomic picture becomes clearer,” he said.

Diandji added that foreign investors remained net buyers of Vietnamese equities this year, but they were focused on blue-chips.

FPI flows to Asia’s emerging markets reached around $2-3 billion a week recently, but Vietnam received a small slice of the cake, according to VinaCapital’s statistics.

Edward Lee Wee Kok, Standard Chartered Vietnam’s rate strategist, said that exchange rate risk was among reasons that foreign investors had not jumped into the country’s securities market. Kok forecasted USD/VND rate at VND20,800 in late 2011, 6 per cent higher from now.

“The weakening dong does not slow economic growth and we predict Vietnam will be among top regional economic growers for the time being, with 7.2 per cent growth in 2011, up from 6.7 per cent this year,” said Kok.

A Vietnam-dedicated fund manager, who declined to be named, said that FPI investors might not be concerned about the potential losses caused by exchange rate risks, but they lost confidence in the local currency.

“If policy-makers do not have suitable measures, the dong would depreciate further. The central bank should not weaken the dong immediately after the USD/VND black rate soars. The central bank can use economic tools related to gold and US deposits to direct these sources into economy,” he said.

During the year to date, foreign investors suffered at least 10 per cent losses on exchange rate fluctuations, according to Saigon Hanoi Investment Fund Management Company statistics.

The current spread between official rate (VND19,500/USD) and black market rate (nearly VND21,000/USD) was 7.7 per cent, promoting doubts that central  bank might use administration tools or weaken the dong further.

The government would not take any moves to depreciate the Vietnamese dong against US dollar until Tet or February next year, Le Duc Thuy, National Financial Supervision Committee chairman told the media last week.

The committee’s deputy chairman Le Xuan Nghia earlier this year said that a 7-8 per cent weakening for dong this year was reasonable. During the year to date, the dong has been weakened 5.3 per cent.