Equity funds flock to Vietnamese stocks
Further rally is likely as overseas money managers pour US$277.1 million into the market amid low valuations and an improving growth outlook
Frontier-market equity funds from Sweden to South Africa are pouring money into Vietnamese stocks, lured by Southeast Asia's lowest valuations and an improving outlook for economic growth.
Coeli Asset Management, RenAsset Management and Asia Frontier Capital say the rally is not done as economic growth accelerates, inflation eases and the outlook for exports improves after the central bank devalued the dong for the first time in 12 months.
Moody's Investors Service raised the country's sovereign rating on July 29, citing an improving balance of payments and rising foreign-exchange reserves.
"We are adding to existing positions in Vietnam," said Thomas Hugger, chief executive at Hong Kong-based Asia Frontier. "Even though it has been among the leading performers in Asia this year, we still think many stocks offer value."
James Bannan, who runs the US$110 million Frontier Markets Fund at Coeli in Sweden, said he was "very positive" on Vietnam. Sven Richter, head of frontier markets at RenAsset, which has offices in Johannesburg, Guernsey and London, is "still finding attractive stocks" to buy.
The VN Index is valued at 13.7 times projected 12-month earnings, the least among the six major Southeast Asian markets.
Still, concerns remain that soured loans in the country's banking sector may curb growth. Increasing bad debts could significantly undermine the resilience of Vietnam's lenders, Standard & Poor's wrote in a July report.
Non-performing loans by commercial lenders amounted to 4.84 per cent of total loans at the end of June, newspaper reported last month. That compares with a central bank estimate of 7.8 per cent at the end of last year. Moody's estimated in February that bad debt at Vietnamese banks amounted to at least 15 per cent of total assets.
"Non-performing loans in the Vietnamese banking system are still at a rather high level and this issue needs to be resolutely tackled," said Hoang Viet Phuong, senior director of Institutional Research & Investment Advisory at Saigon Securities.
The economy is still expanding, with growth quickening to 5.25 per cent in the second quarter from 5.09 per cent three months earlier, as the outlook for exports improved. The central bank devalued the dong in June to spur shipments after anti-China protests in May halted output at foreign-owned factories.
Inflation held at less than 5 per cent for a sixth month in July, compared with a peak of more than 28 per cent in August 2008. In the first six months of the year, exports rose 14.9 per cent from a year earlier, while the trade surplus of US$1.3 billion compares with a US$1.4 billion deficit a year earlier.
"It's a classic early-stage emerging market with a lot of potential," Bannan said. "There are a few very interesting opportunities in the Vietnamese market and we are currently adding to them."
The potential for growth in Vietnam, where 60 per cent of its 90 million population are of working age, is attracting manufacturers.
Disbursed foreign direct investment in Vietnam in the first seven months of the year was estimated at US$6.8 billion, 2.3 per cent more than a year earlier, the Ministry of Planning and Investment said last month.
Samsung Electronics, the world's biggest smartphone maker, received approval last month from the provincial government of Bac Ninh to build a US$1 billion module assembly plant.
"The country is becoming an important centre of manufacturing in the region as it offers lower wages than China and has a large, young and educated working-age population," Hugger said.
