Vietnam’s stocks are poised to resume gains that have made the benchmark equity index Asia’s best performer this year as the nation’s economic resilience shields it from China’s slowdown, according to strategists.
After trading little changed this month and falling 9 percent in August, the VN Index will advance to 622 by the end of 2015, or 10 percent above its close on Sept. 28, according to the average of 11 analyst forecasts in a Bloomberg survey. While strategists have cut their estimates by an average 5 percent since January, such an advance would still be the biggest for any quarter since the first three months of 2014.
The confidence in Vietnam’s stock market underscores how Prime Minister Nguyen Tan Dung’s policies are helping buoy growth in the country’s $186 billion economy, offering investors a bright spot in a region suffering the fallout from China’s slowdown. The economy is expected to accelerate through the second half of the year, underpinned by rising private consumption, export-oriented manufacturing and foreign direct investment, the Asian Development Bank said last week. Vietnam is headed for a 10th straight year of inflows.
“We are keeping our optimistic outlook for the market as the macro picture still looks good, while valuations remain fairly cheap,” said Fiachra Maccana, a managing director and research head at Ho Chi Minh City Securities Corp., the nation’s second-biggest brokerage.
Maccana kept his January projection for the VN Index to advance to 650 by the end of the year. In 2013, he predicted the gauge would rise as much as 33 percent. The index climbed as much as 29 percent before ending the year with a 22 percent gain.
The VN Index has climbed 3.5 percent this year, the most among Asian benchmark gauges, and is valued at 12.5 times estimated earnings, versus 14.3 for the MSCI Southeast Asia Index. The MSCI measure has plunged 25 percent in the period.
The ADB boosted its growth forecast for Vietnam this year to 6.5 percent from 6.1 percent, according to a report released Sept. 21. Gross domestic product expanded 6.28 percent in the first six months of 2015.
Fading inflation is boosting domestic demand, with the number of new businesses climbing 29 percent this year. Inflation dwindled to zero this month for the first-time ever, Nguyen Bich Lam, head of the General Statistics Office, said last week. Price gains have averaged less than 1 percent this year, compared with a five-year average of more than 9 percent through 2014.
A cheaper currency is also lifting the value of overseas shipments. The central bank weakened the dong’s reference rate in August for the third time this year and widened the currency’s trading band after China devalued the yuan. Exports rose 9.6 percent in the nine months through September from a year earlier, according to data from the Ministry of Planning and Investment.
While China was Vietnam’s largest trade partner last year, the U.S. has been growing in importance, with the Southeast Asian nation exporting $8.2 billion worth of goods to America in the first quarter of 2015, compared with $4.9 billion to China, according to data compiled by Bloomberg. A report last week showed the world’s largest economy expanded more than previously forecast in the second quarter.
External risks are rising and investors are getting more cautious.
Still, Vietnam is not immune from the slowdown in China. The weaker dong threatens to increase costs at companies with dollar-denominated debt. Vietnamese analysts project earnings will fall 12 percent in the next 12 months, compared with a 0.9 percent gain for MSCI’s Southeast Asia gauge.
“External risks are rising and investors are getting more cautious,” Hoang Viet Phuong, director of institutional research and investment advisory at Saigon Securities Inc., the country’s largest brokerage, said in Hanoi. “China’s economic slowdown is having a negative impact.”
To lure more overseas investors, the government has allowed some companies to raise foreign ownership limits to 100 percent, while the market regulator is also working on a plan to merge the country’s two stock exchanges, open a derivatives market and secure an upgrade to emerging-market status.
Overseas investors have bought about $174.3 million of the nation’s stocks this year through Sept. 25, compared with outflows of $2.9 billion from Thailand, $857 million from the Philippines and $850 million from Indonesia. Pledged foreign direct investment grew 53 percent to $17.2 billion in Jan.-Sept. period, according to government data.
“Vietnam remains a bright spot in the region thanks to high GDP growth, low valuations and relatively stable currency,” said Michel Tosto, head of institutional sale at Viet Capital Securities, the nation’s third-largest brokerage. “It’s all attracting foreigners to invest.”