(Bloomberg) -- Optimism for Vietnam’s stock market was running high at the start of 2018, before a rout erased all early gains. This year again, investors are confident.
The benchmark VN Index could rise to 1,049 by the end of December, implying an 18 percent advance for 2019, according to the average estimate of nine analysts, investors and strategists compiled by Bloomberg News. In February of last year, market watchers expected the gauge to jump 23 percent for all of 2018, a survey showed at the time -- it ended up sinking 9.3 percent.
“Our view on the outlook for the economy and stock market of Vietnam is positive through 2019, with the domestic picture particularly strong relative to regional and developmental peers,” said Lawrence Brader, the co-portfolio manager of the PXP Vietnam Smaller Companies Fund in Ho Chi Minh City. His firm, PXP Vietnam Asset Management, oversaw $110 million in assets as of November.
Brader expects the nation’s benchmark to surpass its 2018 high and sees “a fair chance of the index doubling from here in the next three to five years.” The gauge hit a record of 1,204 in April, and rising above that level would mean an advance of more than 35 percent for 2019.
Some of the factors analysts are citing for their optimism are:
- Stable economic growth: Vietnam’s gross domestic product has been expanding more than 5 percent a year since 2000
- Cheap valuations: The VN Index trades at about 14 times estimated earnings for the next year, down from more than 20 times in April
While the VN Index December estimate is bullish, it’s nothing compared with last year’s: the 1,049 average projection is 13 percent below the 2018 high. And how can investors be blamed after they got burned so badly?
After six years of the VN Index rising more than 6 percent annually -- including a 48 percent surge in 2017 -- 2018 started on a bright note. By early April, the gauge was up 22 percent for the year, before everything unraveled as it entered a bear market in May. Federal Reserve tightening triggered a surge in the U.S. dollar, just as concerns grew over the consequences of the U.S.-China trade friction.
Risks this year will be mostly external, with the trade war between the U.S. and China a point of focus, analysts said. A slowing global economy and a rebound in oil prices are other perils cited for Vietnam.
“There are a bunch of uncertainties out there,” said Michel Tosto, the head of institutional sales and brokerage at Viet Capital Securities in Ho Chi Minh City. “We expect activities of both local and foreign investors will be more muted. Investors will look for diversification, and investing in both stocks and bonds is not a bad idea.”
While the nation’s economic expansion will be slower -- it’s expected to be 6.6 percent, down from 7.1 percent in 2018 -- he says foreign direct investments will remain strong and the local currency will keep outperforming most of its peers in 2019.
Here are the year-end targets from some firms:
And further comments from market watchers:
Lawrence Brader, co-portfolio manager of the PXP Vietnam Smaller Companies Fund in Ho Chi Minh City:
“The market remains relatively cheap outside of a number of index heavyweights, and we continue to find both value and growth opportunities across a number of sectors. The opportunity to add to equity holdings with a strong outlook for earnings growth at reasonable valuations is apparent.”
Bernard Lapointe, head of research at Viet Dragon Securities in Ho Chi Minh City:
“The VN Index will stay in a fairly tight range between 900 to 1,000. I put a 70 probability on that. A move below or above these levels will depend on the geopolitics and macro headwinds that we are facing or may face.
“The biggest issues for the VN Index are external. Domestically, EPS growth is fine, although we have reduced our growth outlook in general. The dong has stabilized, and the central bank is doing a good job of managing inflation expectations.”
Shamoon Tariq, vice chief investment officer at Tundra Fonder, which helps oversee $350 million in assets:
“We have seen emerging and frontier markets getting roiled in 2018, mainly due to increasing Fed rates in the U.S., strong dollar and uncertainty over the US-China trade war. That has brought valuations in Vietnam to attractive levels.
“We keep adding into Vietnam’s structural growth stories, where we see earnings growth sustainable in coming years and cheap valuations. We are assessing the geopolitical situation in Vietnam’s context but have a positive stance for Vietnam overall.”
