IPO Bonanza Shows There's More Juice Left in Vietnam's Stocks Rallyby
Asia Frontier Capital, Coeli Asset, Tundra Fonder see gains
Market capitalization has risen 58 percent over past year
Rising foreign-direct investment, quickening economic growth and a privatization program that’s boosting the size of the market have offshore investors optimistic there’s more juice left in Vietnam’s stocks rally.
The benchmark VN Index is up 7.3 percent this year, following an advance of 15 percent in 2016, and reached a nine-year high on Feb. 23. While the market has lacked direction since then, fund managers are still buying:
- Asia Frontier Capital Ltd. Chief Executive Officer Thomas Hugger said the market will “continue to do well” and he “would add to existing positions.” Hugger, whose Asia frontier fund has returned 30.5 percent over the past year and beaten 92 percent of its peers, said he’s favoring infrastructure, real-estate and consumer-discretionary stocks
- James Bannan, a fund manager at Coeli Asset Management SA in Malmo, Sweden, said he’s “positive” on Vietnam. Coeli Asset only invests in the country’s consumer shares and has recently increased its holdings in Mobile World Investment Corp. and Phu Nhuan Jewelry JSC, he said.
- Shamoon Tariq, vice chief investment officer at Tundra Fonder AB in Stockholm, said his company had around $70 million in Vietnam equities and is looking to increase this as new companies are floated. Industrials, financials and selective consumer and real-estate stocks should do well this year, he said.
A flurry of new listings is generating global interest in Vietnam. Novaland Investment JSC, Saigon Beer Alcohol Beverage Corp. and Vietjet Aviation JSC have debuted on the market in the last few months, while Vietnam National Petroleum Corp. is expected to join the bourse this year. The VN Index fell 0.2 percent at the 3 p.m. close in Hanoi.
The new entrants contributed more than half of the 58 percent jump in market capitalization over the past 12 months, with the benchmark gauge rising 24 percent during the period. The total value of listed Vietnamese stocks is now equivalent to 32 percent of gross domestic product, approaching the 39 percent ratio in emerging-market Indonesia.
Prime Minister Nguyen Xuan Phuc said in January that limits on foreign ownership of banks would be raised as early as this year. That followed the partial divestment of Vietnam Dairy Products JSC, the country’s largest company, in December. The wave of new listings, initial public offerings and state sales will continue through 2017, Vietnam Asset Management Ltd. wrote in a Jan. 13 report.
Accelerating economic growth should also buoy the market, with Vietnam’s GDP expansion staying on a generally upward trajectory in recent years as its neighbors declined or stalled. The country’s economy will expand 6.5 percent in 2017, according to the median estimate of economists surveyed by Bloomberg, while the government is forecasting growth of 6.7 percent.
Notwithstanding the demise of the Trans-Pacific Partnership trade agreement, which the World Bank forecast would have delivered an 8 percent boost to Vietnam’s gross domestic product by 2030, the country’s low-cost workforce and proximity to good quality ports continues to lure manufacturing investment.
Disbursed foreign-direct investment has risen for five straight years, climbing 9 percent to a record $15.8 billion in 2016, according to official data. Samsung Display Co. received an investment certificate last month to spend $2.5 billion expanding its facilities in the northern province of Bac Ninh.
Even without the TPP, “the Vietnamese story is still strong given its ability to attract low-cost manufacturing jobs,” said Asia Frontier’s Hugger. “This is reflected in the recent announcement by Samsung to expand their operations.”
There are still risks on the horizon. Higher U.S. interest rates, a rise in trade protectionism, the direction of China’s yuan and the Vietnamese market’s relatively low liquidity remain concerns for foreign investors, said Le Nguyet Anh, the Ho Chi Minh City-based head of research at ACB Securities JSC.
Still, a favorable flow backdrop as Pakistan leaves MSCI Inc.’s frontier markets gauge looks set to increase Vietnam’s importance to offshore investors. The country’s stocks are also still relatively cheap, with a 12-month price-to-earnings ratio of 13.3, compared with 17.2 and 14 in its frontier-market peers Morocco and Argentina.
“Vietnam still has good value to express in terms of valuation and growth,” said Federico Parenti, a Milan-based fund manager at Sempione Sim Spa. “Dividends are pretty high and the potential is still there.”