Inflation still stalks market

Fears are growing some big IPOs this year could upset the apple cart

HSBC equity strategist Garry Evans said monetary policy was a key determinant of any stock market and the State Bank had undertook some tough tightening measures as inflation reached new heights.
Since November, the central bank has stopped buying US dollars in return for Vietnamese dong, making it hard for foreign investors to bring money into the country. “The situation is likely to continue until at least February,” Evans said in HSBC’s latest report.

Vietnam’s stock market performance in 2008 could be largely decided by inflation and how the central bank responds, Evans said. Vietnam’s 2007 inflation figure soared to 12.63 per cent against December 2006.
An equity strategist at Ho Chi Minh City Securities Corporation (HSC), meanwhile, said besides inflation, fiscal deficits, upward currency pressures and infrastructure constraints were some of the major issues that had to be addressed in 2008. “We are now in an economic situation that can be described as challenging,” the equity strategist said.

Evans added that the other worry was the initial public offering (IPO) of Vietcombank, the country’s most important state lender, in late 2007, resulted in an expensive average price of VND107,860 ($6.74) per share, or 87 times 2007’s earnings. Such a high price benchmark made it problematical whether the other major IPOs planned for this year could be successfully executed.

“We continue to want some exposure to the Vietnamese market but, given the risks, me recommend cutting exposure from 2 per cent of an Asia-Pacific portfolio to 0.5 per cent,” Evans said.
Evans, however, still liked Vietnam’s long-term outlook as the economy was likely to grow at 8 per cent again in 2008. Corporate earnings growth has been excellent in 2007 and the valuation of Ho Chi Minh Stock Exchange-listed stocks had come down to realistic levels of 20 times 2008’s estimated earnings.
“We believe that this is the perfect buyers market,” said the HSC equity strategist, adding that the current correction would not last forever.

The VIR50 Index closed down 922.55 points on January 11, or 8 per cent lower since it started its life in early 2008. The VN Index, meanwhile, stood at 860.77 points, the lowest level in a year.
As long as global markets do not spend all year in a nervous state, 2008 could be the year when Asia’s frontier markets come of age, Evans said.

“I think Vietnam’s VN Index will be at 1,100 points by the 2008 year’s end, up 18.2 per cent against 2007,” Evans said.
“Vietnam is certainly a buying opportunity now,” said Sriyan Pietersz, JPMorgan Securities’ chief equity strategist for Thailand, Pakistan and Vietnam, adding that consumer, pharmaceuticals, property and construction were preferred stocks.

Vietnam’s index will be one of Asia’s six fastest growers in 2008, behind China (27.1 per cent), Thailand (26.3 per cent), India (20 per cent), Korea (19.3 per cent) and Singapore (19.1 per cent), according to HSBC statistics.
Evans said smaller markets like Vietnam might see some inflows of vast Chinese investment funds while a number of asset management firms were planning to launch frontier funds in early 2008.