Vietnamese stocks have rocketed over the past few weeks, gaining 25% since early August. The recent rush into emerging markets has boosted sentiment, while the long-term story remains compelling. Vietnam has posted GDP growth of over 7% for four years and should grow by around 8.5% this year.
Deregulation and privatisation, along with booming commodities and increasing foreign direct investment have underpinned growth. Higher real incomes are fuelling consumption, with car ownership now up to 5% of the population. The boom is evident from the growth rates at Sacombank, Vietnam’s biggest private-sector bank, notes Christopher Wood of CLSA. It expects loans and pre-tax profits to grow by 90% and 130% respectively this year. And the 85 million-strong population still only has six million bank accounts.
Property too is on a roll. Also a big factor in the market’s recent upswing, says Wood, is the privatisation of major state-owned firms; twenty to 30, including the four major state-owned banks and telecoms and infrastructure companies, are expected to hit the market over the next three years. All this will give the relatively small market capitalisation a big boost and raise the profile of this “truly exciting market”. Leading stocks are on a 2008 p/e of 25, but this figure is matched by anticipated earnings growth, as Wood points out, making Vietnam appear reasonable on a price-to earnings-growth basis.
The best long-term punt on Vietnam, says Profit Hunter’s Manraaj Singh, is the Aim-listed Vietnam Opportunity Fund (VOF), which looks well placed to ride the privatisation wave. Investors may also wish to explore the newly-launched SGL Vietnam Property Fund (SGLV). However, given that emerging markets look vulnerable to global jitters, it might make sense to hold off: better value may soon emerge.