Vietnam stocks, Asia's worst performers in 2011, may climb 25 percent this year as lower interest rates bolster corporate earnings, according to Manulife Asset Management (Vietnam) Co.
The benchmark VN Index may rally to as high as 516 this year, Tran Thi Kim Cuong, who oversees about $300 million as the firm's Ho Chi Minh City-based head of equities, said by phone on Monday. The gauge closed at 413.98 on Monday. Manulife Vietnam is part of Manulife Asset Management, a unit of Manulife Financial Corp., Canada's largest insurer.
"Everyone is expecting that consumer prices will be much lower and the central bank will cut interest rates, supporting corporate earnings," Cuong said. "The market this year is poised for more upside potential than downside."
The VN Index (VNINDEX) has gained 18 percent in 2012, the second-best performance in Asia, as inflation slowed and the central bank signaled it may cut borrowing costs. It tumbled 27 percent in 2011 as the government tightened credit to choke off a surge in inflation, restricting funding for businesses and raising interest rates. Fitch Ratings said in August lending costs for some businesses in July were as high as 25 percent.
Inflation (VNCPIYOY) cooled for a fifth month in January, with consumer prices rising 17.3 percent from a year earlier. The rate may slow to a single-digit pace as early as June, Louis Taylor, Standard Chartered Plc's chief executive for the country, said on Jan. 13. The State Bank of Vietnam instructed lenders to "reduce interest rates to levels that are suitable to the macroeconomic situation," according to a statement posted on its website on Feb. 13.
Manulife Vietnam is favoring consumer stocks, amid "very strong" prospects for consumption growth, and some bank stocks with low valuations, Cuong said.
Her firm holds shares of Vietnam Export-Import Commercial Joint-Stock Bank (EIB), Military Commercial Joint-Stock Bank, Vietnam Dairy Products Joint-Stock Co. (VNM) and Kinh Do Corp., a producer of baked goods and candy.
Vietnamese stocks are cheap and may rally in the next two quarters, Dominic Scriven, chief executive of Dragon Capital Group Ltd., said in a phone interview on Feb. 17. The VN Index's slump last year helped drag valuations to 6.9 times estimated profit on Jan. 10, the lowest level for data compiled by Bloomberg dating back to November 2008. It now trades at a multiple of 9.1.
"We expect a bigger and more sustainable stock rally in the second and third quarters when inflation is expected to reach single digits," Scriven said.