Stocks draw TPP-vacated foreign interest

The US has withdrawn from the Trans-Pacific Partnership (TPP), which may cause the highly anticipated trade deal to fall through. Do you think that this incident will dampen investor interest in Vietnam?

The US decision to pull out of TPP was actually old news. Vietnam already knew this beforehand. In my opinion, TPP was more like a bonus to Vietnam rather than a must-have, and the country still has many buffers against the collapse of TPP.

First, there are other bilateral free trade agreements that still live on and have equal importance to Vietnam, an export machine. Second, Vietnam has a robust domestic economy, which puts the country in much better shape politically and economically than other emerging markets. The blow on export from TPP won’t fall that quickly for Vietnam. I believe that Vietnam can still attract foreign direct investment (FDI) since manufacturers will be looking even more actively for cheap producers if protectionism is unleashed.

Moreover, it seems like US President Donald Trump mainly attacks China while keeping other Asian countries as allies, like South Korea, Japan, and Vietnam. As a result, unless Trump undertakes a global trade war against the entire world, and Vietnam is caught in it together with other emerging markets, I don’t think Vietnam will experience great trouble.

There are concerns that foreign capital is flowing out of Vietnam due to global volatilities, and Vietnam’s stocks are becoming too expensive for a frontier market. What is your take on this? Can the VN-Index reach 800 points this year?

Indeed, there were net outflows from Vietnam’s listed stocks in 2016, but this was largely concentrated in one or two specific special-situation companies, and there has also been money coming in for initial public offerings (IPOs) and private deals that have offset this modest outflow from listed stocks.

I think investors will be attracted by a string of IPOs from big companies in 2017 and 2018. Foreign investors have actually been net buyers so far this year, as they realise Vietnam is in a sweet spot now, compared to neighbouring countries like China, India, or the Philippines, which look good but have their issues. Capital from FDI is also here to stay and the economic mood is buoyant, so I don’t regard the small net outflows from stocks in 2016 as any sort of portent.

I believe the VN-Index can reach at least 800 this year, which up 14 per cent from where it stands now. There are two main drivers.

First, the government continues to accelerate capital market development, such as combining the Hanoi and Ho Chi Minh City stock exchanges, launching derivatives trading in the second or third quarter of this year, and developing a proper fund management industry.

The Vietnamese government has also signalled that it means business on equitisation of state-owned enterprises. A great example is the Unlisted Public Company Market (UPCoM), which grew tremendously in size last year to surpass its parent, the Hanoi Stock Exchange.

Second, earnings growth should be satisfactory. Excluding certain loss-making outliers, earnings-per-share (EPS) growth may reach somewhere between 15 and 16 per cent in 2017.

I don’t think Vietnamese stocks are expensive at all, as the average price-per-earnings ratio in the Vietnamese market is 13x on 12 or 13 per cent of EPS growth, when you put those outliers back in. This is hardly “too expensive”. In fact, a lot of people say Vietnam is expensive because they look at the Vietnam component of the MSCI Frontier Market Index, which only includes the four or five biggest companies Vietnam has and provides a skewed picture of the market.

At Dragon Capital, we follow 80 per cent of stocks on the market, and based on our in-depth analysis, the aggregate top 50 stocks in Vietnam are nowhere near too expensive yet.

Dragon Capital recently invested in budget airline VietJet and retailer Mobile World Corporation (MWC), among other firms. What opportunities are seeking?

Regarding VietJet, we believe that the airline, as well as related aviation companies like Airports Corporation of Vietnam, will benefit from the rise of Vietnam’s middle-class, which wants to travel and can afford it now. VietJet is currently among the top 10 stocks of our main fund, the Vietnam Enterprise Investments Limited.

Meanwhile, MWC is in a league of its own, with a great eye for retailing discipline and really good management. I think MWC will bring in the new era of modern trade for Vietnam.