Vietnam equity market draw back foreign bettors

Investment funds including Ashmore Group Plc and Coeli Asset Management SA have increased holdings in the US$174 billion market since March, while...

The return of foreign capital has assisted domestic investor inflows in driving the benchmark VN-Index up 28 per cent since April, making it the second-best performer globally. — Photo tinnhanhchungkhoan.vn

Foreign investors are edging back into emerging markets like Viet Nam on hopes the recent significant recovery of the equity market will reassure those hoping to capitalise on stronger economic growth in the emerging world.

Investment funds including Ashmore Group Plc and Coeli Asset Management SA have increased holdings in the US$174 billion market since March, while foreign investors have returned to net buying so far this month, the first time since January.

Swedish-based investment fund Coeli Asset has increased the proportion of Vietnamese stocks in its portfolio from 18.6 per cent in early 2020 to about 25 per cent, buying shares after the March selloff. The portfolio value of the fund in frontier markets now totals some $350 million.

“The price-to-books of Viet Nam equities have deteriorated materially over the last 18 months and do not price in the long-term opportunity,” Coeli Asset fund manager James Bannan was quoted by Bloomberg as saying.

The price-to-book (P/B) ratio compares the stock price with underlying assets. A ratio below 1 could indicate either an undervalued stock or that investors have concerns about how well the stock is backed up by assets. A low P/B is a red flag for investors.

The VN-Index is trading at 1.9 times book value, down from about 3.3 times in March 2018.

PYN Elite Fund, a Finnish fund which focuses on Vietnamese shares, held portfolio value of $438 million in Vietnamese equity as of the end of May this year, of which 94 per cent is in stocks and 6 per cent in cash.

The return of foreign capital has assisted domestic investor inflows in driving the benchmark VN-Index up 28 per cent since April, making it the second-best performer globally.

Attractive equity market

Apple Inc is one of the most prominent names wanting to transfer a part of its production activities to Viet Nam.

A supportive local currency and the acceleration of tensions between the world’s two biggest economies in the US and China are drawing investors’ interest in Viet Nam as a cheaper supply-chain alternative to China. Apple is among global giants that have moved in to make use of the country’s manufacturing power.

The Vietnamese dong was among the best-performing Asian currencies this year, down 0.2 per cent versus the US dollar.

Andy Ho, Head of Investment Department of VinaCapital, told news site tinnhanhchungkhoan.vn that foreign investors were attracted to the Vietnamese equity market as they hoped to capitalise on promising earning prospects in the emerging country.

Governments of emerging countries, including Viet Nam, had decided to inject a total capital flows of $6 trillion into their economies to ease pandemic economic pain, Ho said.

Foreign investors who can access this capital were paying more attention to the Vietnamese equity market, which offers greater returns than investment opportunities in their country, where bonds are offered at negative interest rates, deposit rates stay below zero and dividend payout ratios are only from 1 to 2 per cent, he said.

In Viet Nam foreign investors could enjoy dividend payout ratios of 3 to 4 per cent, bond interest rates of 3 to 4 per cent and deposit interest rates of 6 to 7 per cent, Andy Ho said.

The political situation and business environment in Viet Nam remained stable, he said, adding that with a population of some 90 million, purchasing power would increase exponentially, attracting many businesses as well as domestic and foreign investors.

According to Ho, developed countries pumping about $6 trillion into their economies would help boost the recovery of the global stock market. For example, in 2017, the VN-Index soared by nearly 50 per cent after the European Central Bank issued $1 trillion in new-printed money. — VNS