Vietnam stocks, Southeast Asia's worst performers this year, may climb as much as 41 percent as a global recovery prompts investors to pour money into emerging markets, according to PXP Vietnam Asset Management.
The Ho Chi Minh City Stock Exchange's VN Index may climb as high as 700 "at some point during this year," and return within two years to the 1,000 level that it last touched in 2007, Kevin Snowball, chief executive of PXP, said in an interview. The gauge fell 0.4 percent to 498.10 at the 11 a.m. close in Ho Chi Minh City.
Vietnam equities have tumbled 57 percent from the record 1,170.67 in March 2007 as the global financial crisis prompted a retreat from developing nations. Foreign funds have bought a net VND7.5 trillion ($391 million) of stocks on the exchange this year. Inflows slumped to 2.7 trillion dong last year, from VND5.8 trillion in 2008 and 23 trillion in 2007.
"If people become less optimistic about the prospects for returns from developed markets, they will increase exposure to emerging markets," Snowball said. "As risk appetite increases, they will get to frontier markets including Vietnam."
Policy makers in most developed economies have refrained from raising interest rates from record lows amid concern the global recovery will falter. The International Monetary Fund said financial-market turmoil has increased the risks to the rebound, and Moody's Investors Service lowered its credit ratings on Portugal and Ireland.
PXP Vietnam Emerging Equity Fund Ltd. has climbed 19 percent in 12 months, beating 86 percent of the 78 Vietnam equity funds, according to data compiled by Bloomberg. The net value of PXP Vietnam Fund Ltd. has doubled over five years to June 30, the best among only three funds tracked for the period by Bloomberg.
The VN Index has advanced 0.7 percent this year, trailing behind other Southeast Asian markets. Equity market risks include "persistently" rising inflation or a wider trade deficit that could weaken confidence in the currency, Nomura Holdings Inc. analysts led by Sean Darby wrote in a report July 22, maintaining a "bearish" view.
Stock underperformed other Southeast Asian markets amid concerns the country's inflation, the highest in the region, may accelerate as the government raised its 2010 target to 8 percent from 7 percent in May. The government's focus on boosting growth poses risks to the outlook for controlling the pace of price increases, Citigroup Inc. said this month.
The economy expanded 6.4 percent in the three months through June, compared with 5.83 percent in the first quarter. Inflation cooled for a fourth month in July, with consumer price index rising 8.19 percent from a year earlier, the General Statistics Office in Hanoi reported July 24.
"July inflation figures should be supportive to stock market sentiment once investors are willing to take a longer term view on the macroeconomic environment and market fundamentals," Snowball said.
The outlook for equities in the country also depends on increased purchases by foreign institutional investors, Snowball said. Domestic investors make up 95 percent of the market, he said. There will be a "sustainable advance" when foreign participation reaches 15 percent to 20 percent, he said.