Vietnam’s benchmark index is expected to reach a 7-year high, as fast growth along with the lowest valuations in Southeast Asia lure international investors to the country’s stock market.
The VN-Index, which is composed of all companies listed on the Ho Chi Minh City stock exchange, will advance to around 655 by the end of 2015 – or by 15% from its current price of 575 – according to the average of 11 different analyst predictions.
Patrick Mitchell, head of institutional sales at VINASecurities JSC, is among the most bullish of these analysts. He predicts that the VN-Index will reach highs of 680 by December, saying that “Valuations and fundamentals in the macroeconomy continue to support a move higher in the index”.
Mitchell believes the technology and consumer staples sectors will outperform, and his recommended stocks for investors looking to profit from the market’s rise include Vietnam Dairy Products JSC, Mobile World Investment Corp., and FPT Corp.
Vietnamese stocks have the lowest valuations in all of ASEAN and are priced at only 12.5 times earnings, compared to 14.3 for the MSCI Southeast Asia Index. This has helped the VN-Index advance by 5.5% since the new year.
However, there are still many issues for the nation to overcome. Banks in Vietnam are haunted by a large amount of bad debt, and growth hit a 12-year low back in 2012.
Moody’s raised Vietnam’s outlook from negative to stable in late 2014, but noted that profits in the financial industry will continue to remain under pressure.
Foreigners wishing to invest in Vietnam stocks face restricted access and numerous regulations. The government plans to raise the foreign ownership limit on companies from 49% to 60%, but progress has been slow, with the latest version of the proposal to be submitted in the second half of this year.
In addition, and partly because of restrictions on foreigners, stocks in Vietnam are not heavily traded and can often be illiquid for larger investors.
The average trading volume on the Ho Chi Minh City Stock Exchange was less than US$103 million per day in 2014 – only around one quarter of Indonesia’s average.
Total inflow from foreign investors in Vietnamese stocks was only US$136 million in 2014, compared with US$3.76 billion in Indonesia and US$1.25 in the Philippines.
“We would like to see a more diversified investor base instead of turnover remaining dominated by retail investors as it is now, in order to reduce volatility and achieve a sustainable long-term advance,” said Kevin Snowball, CEO of PXP Vietnam Asset Management.