Vietnam’s biggest fund manager is betting the cheapest stocks in Southeast Asia will extend gains as the economy recovers from the slowest growth in 13 years.
The stock market will rise steadily next year to reflect an economic expansion of between 5 percent and 6 percent, said Andy Ho, managing director and head of investment at VinaCapital Investment Management Ltd. in Ho Chi Minh City, which oversees about $1.5 billion. The firm manages the five top performers this year among 78 Vietnam equity funds, made up of multiple listings of its two funds traded in the U.S., London and Germany, according to data compiled by Bloomberg.
“Our strategy has and will continue to focus on the basic sectors that contribute to the growth of the domestic economies,” such as pharmaceuticals, education and agriculture, Ho said in an e-mailed response to queries on Dec. 25, declining to name specific stocks. “We will continue to focus in these sectors because they continue to grow with the rapid-changing demographics of Vietnam.”
The benchmark VN Index has risen 18 percent in 2012, the first advance in three years, as the central bank reduced borrowing costs amid signs inflation was under control. The measure trades at 10.6 times estimated earnings, below the five-year average of 11.2 and the lowest among the six Southeast Asian markets tracked by Bloomberg.
Earnings per share for the 308 companies on the gauge are expected to rise 9.3 percent this year, and profit growth is forecast to double to 18 percent in 2013, according to data compiled by Bloomberg.
Among VinaCapital’s best performers are Vinamilk or Vietnam Dairy Products Joint-Stock Co., the nation’s biggest listed dairy producer. The stock has risen 53 percent in 2012 and jumped to a record high in October after the company posted a 35 percent gain in pretax profits in the first nine months of the year. Vegetable Oil Packing Joint-Stock Co., which makes containers for the food processing industry and is part owned by Vinamilk, is the biggest gainer in the index this year after rallying four-fold.
Dominic Scriven, chief executive officer of Ho Chi Minh City-based fund manager Dragon Capital, said in a phone interview yesterday there’s “cautious optimism” about the outlook for stocks as concerns about non-performing loans at banks are countered by easing inflation.
Banks have reported bad debt to be about 4.5 percent of outstanding loans, while the central bank’s estimate is about 8.75 percent, the International Monetary Fund has said. Credit growth this year was about 7 percent, the central bank said yesterday. That compares with 14 percent last year and 32 percent in 2010, the IMF said.
“The optimism is that we are some way through this damaging process,” Scriven said. “The biggest single issue is probably confidence. At all levels, confidence is very low: banks aren’t lending, companies aren’t investing, consumers aren’t buying, people aren’t investing in real estate.”
Scriven has reduced his holdings in banks and is maintaining his heaviest weightings in consumer companies including Vinamilk and Masan Group Corp. His Vietnam Growth Fund has gained 26.6 percent over the past year, beating 76 percent of peer funds, according to data compiled by Bloomberg.
Inflation slowed for the first time in four months in December, with consumer prices rising 6.81 percent from a year earlier after gaining 7.08 percent in November, the government said. The inflation rate was 23 percent in August 2011.
“The macro has improved tremendously,” said Kevin Snowball, chief executive officer of PXP Vietnam Asset Management in Ho Chi Minh City, who last month correctly predicted a rebound in Vietnam stocks. “We stand by that, that the bad news has been priced in the market. Once the selling pressure is gone, it doesn’t take too long for the turnover to get going again.”
PXP Vietnam Fund posted a 33 percent return on net asset value as of yesterday, Snowball said, which would be twice the gain of the benchmark measure.
The VN Index gained 8.4 percent since he forecast a year-end rally in a Nov. 26 report. In 2013, he will be monitoring the recovery in the U.S. and China and how that affects Vietnam’s exports.
“As long as the U.S. and China continue to perform, Vietnam will continue to make stuff they want and make more of it,” he said. “We’ve seen a move up in the production value chain with Vietnam becoming a mini-China.”
Vietnam’s economy expanded at the slowest pace in 13 years in 2012 as a slump in bank lending damped domestic demand. Gross domestic product rose 5.03 percent, down from 5.89 percent in 2011 and the least since 1999 when it grew 4.77 percent, the General Statistics Office said Dec. 24. Vietnam may expand about 5.5 percent next year, the government said on Dec. 10.
The monetary authority this month cut benchmark interest rates for a sixth time to help companies “cope with difficulties in production and business,” even as the World Bank warned against easing too soon.
The State Bank of Vietnam’s refinancing rate was lowered to 9 percent from 10 percent, while the discount rate was cut to 7 percent from 8 percent, the central bank said on its website on Dec. 21. The refinancing rate was 15 percent at the beginning of the year, while the discount rate was 13 percent.
“The bright side is that inflation is tamed and thus, the regulators have plenty of room to loosen monetary policy to stimulate growth,” Ho said.
The Vietnam stock index dropped 2 percent in the past six months, the worst performer in Asia after Mongolia and among the 10 biggest decliners globally in that period. Prime Minister Nguyen Tan Dung said last month that he will stay in his job after lawmakers criticized his handling of the economy.
Moody’s Investors Service cut Vietnam’s credit rating in September, citing “more pronounced weaknesses in the banking system” and costs related to recapitalizing banks. Concerns about the sector are increasing, the World Bank said this month, even as the government said it averted risks to the safety of the lenders.
The Asian Development Bank said in a report on Dec. 7 that private consumption and investment are bolstering Southeast Asian economies even as the rest of the region is forecast to expand less than initially estimated. Among the region’s economic areas, it only raised its projections for Southeast Asia, predicting an expansion of 5.3 percent in 2012 from 5.2 percent earlier.
The prospects for developing Asian nations contrast with the fiscal and demographic challenges faced by more advanced economies, as higher public spending and younger populations support domestic demand and lure investment even as global expansion weakens.
“Vietnam, with a young and growing population of 90 million people and full of natural resources, represents a tremendous amount of opportunities for investors to make solid returns,” Ho said.