Market to push back

HSBC equity market strategist Garry Evans said as valuations had risen significantly elsewhere, investors were again looking for new opportunities.

Evans said Vietnamese valuations were attractive, with the trailing price to earnings (P/E) at a 38 per cent discount compared to Asia excluding Japan, a 21 per cent discount on its own average since 2008, a 27 per cent discount compared to the MSCI emerging market and a 32 per cent discount compared to the MSCI frontier market.

“We believe this is the right time to have another look at Vietnamese stocks as the country presents an exciting opportunity in 2011,” Evans said in a November bulletin titled Vietnam Insights.

He said accelerated privatisation and ongoing market reforms should provide multi-year support to lift liquidity by luring back foreign investors. “Vietnam does not have the same market capitalisation and turnover as other ASEAN markets, but is a better choice than other frontier markets like Sri Lanka and Pakistan”.

Vietnamese companies’ earnings have shown impressive growth and stability during 2006-2009, generating higher returns than most Asian peers, thanks to high asset ratios and strong domestic growth.

The long-term economic growth story is compelling. Vietnam’s 2011 consensus gross domestic product (GDP) forecast is 7.1 per cent, 16 per cent higher than the consensus growth forecast for Asia excluding  Japan at 6.1 per cent.

“Given the catalysts above, we do not think the VN-Index will go much lower from the current [400 point] level,” said Evans.

Dang Pham Minh Loan, an investment director with VinaCapital, said for medium to long-term investors the market offered opportunities and if VN-Index fell by an additional 5-10 per cent, there were no reasons to ignore good stocks.

“With efforts to stabilise the macroeconomy, Vietnam’s market will look brighter in 2011. It is now a good time to cash in,” Loan told VIR.

In 2011, “hot money” will continue to find emerging Asian markets and Vietnam’s market would attract a part of this thanks to its attractive valuations. “Foreign portfolio capital will heavily flow into Vietnam over the next six to 18 months,” added Andy Ho, VinaCapital’s chief executive officer.

While it is a good opportunity to buy Vietnamese equities, it does not mean the country’s macro risks have dissipated. “Like other frontier markets, many of these risks are structural, so it was important for investors to have a thorough understanding of the terrain,” said Evans.

In a related development, foreign portfolio investors have been net buyers of Vietnamese equities year to date with net 195 million shares worth VND12 trillion ($615 million) on Ho Chi Minh Stock Exchange (HoSE) alone, according to HoSE statistics.