Thursday, August 22

Vietnam stock valuations seen as pricey after IPO binge

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SINGAPORE/HANOI: Vietnam has just celebrated its two biggest IPOs and its first-ever ranking as Southeast Asia’s hottest capital market.

But its benchmark index has also just suffered its worst monthly fall in seven years, prompting fund managers and strategists to warn valuations may have peaked.

The small frontier market, whose main index has a market value of US$128 billion, has in recent years become an investor darling, buoyed by a fast-growing economy and expectations that it could be reclassified as a mainstream emerging market when the index provider MSCI publishes its annual review in June.

Investor appetite has been whetted further by the government’s ambitious privatisation and market reform plans.

The Vietnam Index is still up 7 per cent this year, and 70 per cent over the last two years, but some analysts say that risks are rising as blue chips become expensive.

Hasnain Malik, equity research head at the London-based Exotix Capital, said that interest in Vietnam was “built on low political risk, export and consumption growth and low inflation”, but investors had priced in those positives already.

“The market is more sensitive to any whiff of disappointment, rather than further confirmation of the positive,” Malik said.

In addition to a sell-off in emerging markets and concerns over new rules related to margin lending, worries that Vietnamese stocks are over-valued led to a 10 per cent fall in the market last month, which compares with a rise of 1 per cent in MSCI’s Asia ex-Japan index.

Large Vietnamese companies – those valued at more than US$1 billion – are on aggregate trading at 19 times estimated profits for the next 12 months, compared with 14.7 times for Indonesia and 15.1 for Philippines, Reuters data shows.

Some firms stand out: Vingroup trades at 37 times estimated earnings.

Alan Richardson, senior portfolio manager of Asean equities at Samsung Asset Management said: “The market is over-valued because investors have not priced in potential risk of rising capital markets volatility” from external factors like the brewing trade war between China and the United States.

He also cited tighter liquidity stemming from rising US bond yields and the appreciation of the dollar.

All that could make equity fund flows turn negative.

Still, the sale of shares in Vinhomes, a residential property developer that is part of the country’s biggest conglomerate, Vingroup JSC, raised US$2.2 billion over in the past month and attracted the likes of GIC, Singapore’s sovereign wealth fund, and Mirae Asset Global Investments.

This eclipsed an equity offering from Techcombank, which raised about US$920 million from investors including Fidelity, GIC and Dragon Capital, a local fund, last month.

Cornerstone investors took up roughly three-quarters of both issues, underlining strong interest in businesses benefiting from the booming economy and expanding middle class.

Despite the recent slump, Vietnam’s equity market still ranks as Asia’s best performer over the last two years.

The country has experienced a manufacturing boom that spurred its export-dependent economy to grow by 7.4 per cent in the first quarter of this year – its fastest pace in a decade – after growing by 6.8 per cent last year.

The government also has ambitious privatisation plans and is aiming for IPOs for 64 state companies in 2018, including the telecoms firm MobiFone, and 18 others in 2019 such as the coffee company Vinacafe. — Reuters