Vietnam Food, Drinks Stocks May Beat Index Amid Inflation, ThangLong Says
Vietnam’s food and beverage stocks will probably outperform the benchmark index as consumers maintain essential spending even while inflation accelerates, the country’s biggest brokerage said.
“People can cut back on luxury goods, but they still need to eat and drink,” said Do Hiep Hoa, head of equity research at Hanoi-based Thang Long Securities Joint-Stock Co., recommending Vietnam Dairy Products Joint-Stock Co. among so-called defensive shares. “I do not expect the food sector to gain, but it should fall less than the overall market if inflation remains high.”
The Ho Chi Minh City Stock Exchange’s VN Index has slumped 8.9 percent this year as high interest rates, currency devaluations and tighter capital adequacy ratios for banks discourage investment. The index entered a so-called bear market on Aug. 24 after tumbling more than 20 percent from a high in May. This year, it has beaten only Japan among Asia’s 15 biggest equity markets.
Thang Long cut its index target by 8.9 percent to 469.50 in a report dated Oct. 10. The gauge has dropped 1.8 percent since then, leaving it 62 percent below the all-time high of 1,170.67 on March 12, 2007. The measure fell 0.4 percent to 450.98 at 10:23 a.m. local time.
Vietnam Dairy Products, or Vinamilk, the country’s third- most-valuable company and biggest dairy producer, has dropped 18 percent from its record high on Feb. 27, 2007, less than one- third of the benchmark index’s tumble from its 2007 record. Masan Group Corp., whose food products include instant noodles and sauces, has surged 65 percent this year. Kinh Do Corp., a producer of baked goods and candy, has gained 11 percent in 2010.
Devaluation, Inflation
Vietnam’s inflation accelerated to a 19-month high, a sign that an August currency devaluation may be hurting efforts to restrain prices. Consumer prices rose 9.66 percent in October from the same month a year earlier, according to figures released by the General Statistics Office in Hanoi on Oct. 23.
The central bank has devalued its currency three times in the past year as policy makers sought to cut the trade deficit. The dong’s weakness may fan inflation, which has held above 8 percent for nine consecutive months, exceeding the government’s target for this year.
“Inflation hasn’t shown signs of easing for the rest of the year, and foreign demand hasn’t fully recovered,” Hoa said. Still, the food and beverage “sector relies on rising domestic demand, which in turn depends on a fast-growing population and per capita GDP,” he said.
Prime Minister Nguyen Tan Dung said on Oct. 20 that the government will target economic growth of 7 percent to 7.5 percent next year and the economy may expand 6.7 percent this year. Gross domestic product per capita would reach $3,000 to $3,200 by 2020, he said in August. The current figure is about $1,160, Dung said on Oct. 20.
To contact the Bloomberg News staff on this story: Diep Ngoc Pham in Hanoi at dpham5@bloomberg.net
To contact the editor responsible for this story: Linus Chua at lchua@bloomberg.net
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