World-Beating Vietnam Stocks Poised to Extend Rally on Policies

The world-beating rally that drove Vietnamese stocks into a bull market is poised to continue as the government takes steps to boost the economy, BIDV Securities Co. and Vietnam Holding Asset Management Ltd. said.

The benchmark VN Index added 0.7 percent at the noon break in Ho Chi Minh City, poised for a 13th straight daily gain, the longest winning streak since September 2011. The measure is trading at 13 times reported earnings, the most expensive in three years. The gauge has surged 23 percent from a 10-month low on Nov. 2. An advance of 20 percent or more from a low signals a bull market to some investors.

The VN Index has climbed 12 percent this year, the most among global benchmarks tracked by Bloomberg, after the central bank cut interest rates last month amid signs inflation is slowing. The measure slumped 23 percent from May through Nov. 2 as slowing growth hurt corporate earnings and arrests of banking officials fueled concerns about financial-system instability. The government announced two resolutions yesterday to tackle bad debt, spur lending and reduce corporate income taxes in 2013, according to statements on its website.

“I expect the index to reach 500 around the end of the first quarter,” Le Thi Hai Duong, brokerage manager at Hanoi-based BIDV Securities, a unit of the country’s second-biggest lender by assets, said yesterday. “For the medium term, it’s still good to invest. There might be some minor corrections though.”

Sell Signal

Vietnam Dairy Products Joint-Stock Co. rose 2 percent to 102,000 dong, heading for a record high. PetroVietnam Gas Joint-Stock Co. surged 4.9 percent to 42,800 dong, bound for the highest close since May 22.

The VN Index’s price-earnings ratio is trading at the biggest premium versus the MSCI Emerging Market Index since June 2009, data compiled by Bloomberg show. The Vietnamese gauge’s 14-day relative strength index rose to 94 today, the highest in almost seven years, and above the 70 level that some traders use as a sell signal.

“There’s optimism that corporate earnings will be good this year as the government appears to be more determined to take action to boost the economy, especially with inflation cooling,” Duong said.

Vietnam’s economy expanded 5.03 percent in 2012, the slowest pace in 13 years, the General Statistics Office said on Dec. 24. The economy may expand about 5.5 percent this year, the government said on Dec. 10. Inflation slowed for the first time in four months in December to 6.81 percent, compared with a peak of 23 percent in August 2011. The government met last month to discuss forming a debt-asset management company to resolve bad bank loans.

Templeton’s Mobius

Prime Minister Nguyen Tan Dung instructed the central bank to pursue monetary policies this year that balance curbing inflation with increased commercial lending and economic growth, according to a statement on the central bank’s website yesterday.

The VN Index also rose yesterday after the State Securities Commission said on Jan. 9 it may increase the foreign-ownership cap on some companies to help boost the nation’s equity markets. It plans to widen trading bands on the two stock exchanges in Hanoi and Ho Chi Minh City from Jan. 15, increase margin financing, establish a credit-rating agency and introduce more financial products.

“Right now, the problem is that lack of liquidity means that if you want to buy stocks, you have to pay a premium,” Mark Mobius, who oversees more than $40 billion at Templeton Emerging Markets Group, said in an interview on Jan. 7. “As they increase the foreign ownership limit, that means more stocks will be available, the market will be more liquid and prices will be fair.”

Foreign Flows

Overseas investors have been net buyers of the nation’s shares for six straight months, data compiled by Bloomberg show. Foreigners have purchased a net $51 million of stocks this year, more than double the amount at the same time in 2012, the data show.

“There’s a good chance this positive movement will continue,” Jean-Christophe Ganz, Zurich-based chairman of Vietnam Holding Asset Management, which oversees about $71 million invested in Vietnamese companies, said by phone yesterday. “Domestic investors move when they see or hear or feel that foreign investors are coming in. If the inflow from foreign investors continues, it’s likely to be interpreted by domestic investors as a positive signal.”