Vietnam rally fails to alarm bulls as stocks hit ’08 high

Bloomberg

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Vietnam’s economy is showing signs of improving health. Inflation slowed to 6.36 percent in May, the least since August 2012, and exports climbed 15 percent in the first five months from last year. Vietnam’s economy is showing signs of improving health. Inflation slowed to 6.36 percent in May, the least since August 2012, and exports climbed 15 percent in the first five months from last year.

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Equity strategists are boosting forecasts for Vietnam stocks as growing confidence in Southeast Asia’s sixth-largest economy sends the benchmark index to its highest level since 2008.
The average year-end estimate for the VN Index has increased 12 percent since January to 675, or 5.3 percent above its current level, according to a Bloomberg survey of 10 forecasters. The gauge has increased 27 percent this year, the biggest gain among five regional peers, and closed at the highest level since March 2008 yesterday.
Vietnam’s economy will expand this year at the fastest pace since 2011, according to government forecasts, as exports accelerate and the trade surplus widens. International investors poured $263 million into the nation’s stocks this year through Aug. 29, set for the ninth straight year of net buying. Profits at VN index companies are projected to rise 13 percent in 12 months, twice as much as the MSCI Southeast Asia Index.
“For the remainder of the year, the VN Index can continue to go higher in the absence of unexpected bad news,” Kevin Snowball, the chief executive officer of PXP Vietnam Asset Management, said in an interview. “The economy is in very good shape.”
Snowball’s London-listed PXP Vietnam Fund has returned 103 percent in dollar terms over the past three years, beating the 67 percent gain in the VN Index, according to data compiled by Bloomberg. The benchmark gauge rose 0.6 percent yesterday to 640.75.

Improving exports
Prime Minister Nguyen Tan Dung said last week that an economic growth target of 5.8 percent this year is “feasible,” according to a statement on the state website. GDP expanded 5.42 percent in 2013. Dung also warned last month that the country would risk missing that target if officials “don’t work hard enough” to implement planned measures.
Exports rose 14.9 percent from a year earlier in the first six months of 2014, while the country posted a six-month trade surplus of $1.3 billion, compared with a $1.4 billion deficit a year earlier. Inflation may be about 5 percent this year, down from a peak of more than 28 percent in August 2008.
Gains in stocks may lure investors from savings accounts, where banks are offering interest rates as low as 5 percent, according to Tran Thi Kim Cuong, the Ho Chi Minh City-based head of equities at Manulife (Vietnam) Asset Management.
Bad debts
“I am relatively bullish, as other investment channels such as bank savings are not very attractive,” Cuong, who helps oversee about $440 million, said in a phone interview on Aug. 29. She has raised her year-end VN index forecast by 7.4 percent since January to 650.

A man rides a motorcycle past the Ho Chi Minh City Stock Exchange in Ho Chi Minh City.
Some investors are still concerned that bad debts in Vietnam’s banking system and a below-target pace of initial public offerings by state-owned companies will restrain the nation’s economic recovery.
A program of privatizing government-owned companies has raised less than half of the targeted funds this year. Bad-debt levels at the nation’s lenders remain high at about 15 percent, Moody’s Investors Service said in February, even after efforts to clean up the banking system. The central bank estimated the level of soured loans rose to 4.17 percent at the end of June, compared with 3.6 percent at the end of last year.
“Resolution of the high non-performing loans in the banking system is a key to unlocking Vietnam’s full economic potential,” Eugenia Fabon Victorino, a Singapore-based economist at Australia & New Zealand Banking Group Ltd., wrote in a report dated Aug. 12.
Foreign ownership
The country’s shares are still cheap relative to regional peers. The VN index is valued at about 14.6 times estimated 12-month earnings, versus a multiple of 16 in Malaysia, 18 in the Philippines and 15.2 in Indonesia, according to data compiled by Bloomberg.
Vietnam stocks will get another boost once the government relaxes ownership caps for foreign investors, PXP’s Snowball said. The Ministry of Finance has submitted a plan to Prime Minister Dung that would lift the limit on foreigners’ holdings of voting shares in some industries to 60 percent from 49 percent, Nguyen Son, head of market development at the State Securities Commission, said in November.
“It seems that Vietnam is ready to relax some of its policies and there is a shift toward stimulating growth,” said Attila Vajda, Singapore-based managing director at Project Asia Research & Consulting Pte., who has raised his VN Index (VNINDEX) target to 690 from 620. “We expect a solid finish to the year.”

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