Vietnam’s stock strategists say the benchmark index will jump to a seven-year high this year as accelerating economic growth boosts earnings and the cheapest valuations in Southeast Asia lure investors.
The VN Index will advance to about 655 by the end of 2015, or 15 percent from its closing level yesterday, according to the average of 11 analyst forecasts. The measure is valued at 12.5 times estimated earnings, versus 14.3 for the MSCI Southeast Asia Index, data compiled by Bloomberg show.
Vietnamese analysts project earnings will climb 10 percent in the next 12 months, compared with a 2 percent drop for the Southeast Asia gauge. The country’s economy is forecast to grow at more than 6 percent for first time since 2011 this year as foreign investment boosts exporters, banks increase lending and slowing inflation encourages consumers to spend.
“Valuations and fundamentals in the macroeconomy continue to support a move higher in the index,” said Patrick Mitchell, the Ho Chi Minh City-based head of institutional sales at VinaSecurities JSC.
Mitchell predicts the VN index will climb as high as 680 this year and recommends shares of technology and consumer- staples companies. Among his favored stocks are Mobile World Investment Corp., FPT Corp., Vietnam Dairy Products JSC and Masan Group Corp.
The VN Index has advanced 5.3 percent since Dec. 31 and climbed 1 percent to 574.54 today, the steepest gain since Jan. 13. The gauge rose 8.1 percent in 2014.
Vietnam’s economic outlook is still clouded by bad debts in the banking system, which helped drag economic growth to a 13- year low in 2012. While Moody’s Investors Service raised the outlook for Vietnam’s banks to stable from negative in December, it warned that lenders’ profits will remain “under pressure.”
Foreign investors in Vietnam’s stock market also face low volume and restricted access to shares. Progress on proposals to raise foreign-ownership limits at listed companies has been slow, with the State Securities Commission saying on Jan. 5 that it may submit the latest plan to the government in the third quarter.
The average value of share trading on the Ho Chi Minh exchange was about 2.2 trillion dong ($103 million) a day last year, less than a quarter of the total in Indonesia, data compiled by Bloomberg show.
While international investors were net buyers of Vietnamese stocks for ninth straight year in 2014, the total inflow of $136 million was dwarfed by the $3.76 billion that poured into Indonesian equities and $1.25 billion into the Philippines.
“We would like to see a more diversified investor base instead of turnover remaining dominated by retail investors as it is now, in order to reduce volatility and achieve a sustainable long-term advance,” said Kevin Snowball, chief executive officer of PXP Vietnam Asset Management in Ho Chi Minh City.
Vietnam’s overseas shipments jumped 13.6 percent last year, while disbursed foreign direct investment grew 7.4 percent to $12.35 billion and credit growth rose 12.6 percent as of Dec. 22, according to government data. Inflation eased to the slowest in at least nine years last month as oil prices tumbled.
The central bank has pledged to push the mergers of some banks and force others into bankruptcy as it strives to cut the region’s highest levels of bad debt and reinvigorate the lending local companies rely on to fuel growth.
“We are bullish on Vietnamese equities this year,” Tran Thi Kim Cuong, the Ho Chi Minh City-based head of equities at Manulife (Vietnam) Asset Management, which oversees about $474 million, said by phone on Jan. 14.
Cuong predicts the VN Index will reach about 655 by December and says banking stocks “will have a chance to perform well in the short term after the central bank said it will boost industry mergers.” She also recommended shares of Vinamilk, the nation’s biggest dairy firm, and Masan, a packaged food company.