Vietnam stocks are expected to reach a 7-year high. Fast growth and the lowest valuations in Southeast Asia are luring global investors to the country.
The VN-Index, composed of all companies listed on the Ho Chi Minh City stock exchange, will advance by 15%. This is 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. Mitchell clarifies that “valuations and fundamentals in the macroeconomy continue to support a move higher in the index”.
He believes the technology and consumer staples sectors will outperform. His recommended stocks for investors include Vietnam Dairy Products JSC, Mobile World Investment Corp., and FPT Corp.
Attractive Valuation for Vietnam Stocks
Equities in Vietnam have the lowest valuations in all of ASEAN. They’re priced at only 12.5 times earnings compared the MSCI Southeast Asia Index’s 14.3. This 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. Yet they noted 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 and spur competitiveness. But progress is slow.
In addition, and partly because of restrictions on foreigners, stocks in Vietnam are not heavily traded. They’re often illiquid for larger investors. Average trading volume on the Ho Chi Minh City Stock Exchange was less than US$103 million per day in 2014. This is around one quarter of Indonesia’s average, as a comparison.
Total inflow from foreign investors in Vietnam was only US$136 million in 2014. This is 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,” said Kevin Snowball, CEO of PXP Vietnam Asset Management.
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