Barbs lurk amid tasty share offerings

Quach Manh Hao, deputy general director with Thang Long Securities (TLS), said although macro figures portrayed Vietnam’s economy in good light, there were risks such as inflation, while persistently high interest rates have prevented firms from expanding production.

Domestic equities have declined roughly 14 per cent in August, with an oversupply of shares, earning dilutions and limited credit growth dangers lurking.

“Given current fundamentals, we have lowered our year-end target for the VN-Index from 536.74 to 515.11 points to reflect the above mentioned risks,” Hao said in a TLS report Vietnam Outlook dated August 31.

TLS’ latest forecast shows the VN-Index of 2010 would be up just 4 per cent on-year against 2009.

The VN-Index closed 2009 at 494.77 points , up 56.8 per cent on-year but up 110 per cent from its lowest level on February 24, 2009 thanks to the loosening monetary policies to support economic growth.

Hao said it was the third consecutive month TLS had kept a cautious eye on the market, believing there would be no surprising moves for equities unless the State Bank bought long-term bonds, which should help reduce interest rates and supply funds to the economy.

Numerous analysts earlier this year claimed that  2010 would be a good year for the stock market as the economic recovery was apparent. VinaSecurities previously forecasted Vietnam’s equities valuations would soar an additional 40 per cent this year, finishing at 650-700 points.

However, some cautious analysts said the macro economic variables might decide the overall trend, but they could not explain the frequent volatility.

“Vietnam’s market might reach 700 points this year, but investors should also prepare for the bad scenario of 430 points or even lower,” said Nguyen Trong Nghia, director of TLS’s investment banking division.

Nitin Jaiswal, senior analyst with Bloomberg Asia Pacific, said that this year would be difficult to predict as market outlook was mixed. “The risk is future corporate earning performances which might be not good as expected. Earnings will hold the key and set a tone for market direction,” Jaiswal said.  

Hao, however, said that compared to regional peers, Vietnam’s market looked attractive in terms of price-to-earnings ratios (P/E). Vietnam’s P/E is around 9.9, compared to Indonesia (31.29), Thailand (14.27), the Philippines (12.04) and South Korea (11.49).

“With expected revenues of the top 60 listed companies rising over 50 per cent and earnings growth more than 30 per cent in 2010 year on year, we believe Vietnam is attractive in terms of valuations,” said Hao.