Vietnam Market Tumble Means Cheapest Stocks in Six Months

Vietnamese stocks falling into a bear market dragged valuations to a six-month low against Southeast Asian peers as the arrest of bank officials last week fueled concern of instability in the nation’s financial system.

The VN Index (VNINDEX) fell 0.1 percent to 385.78 as of the 2:15 p.m. close in Ho Chi Minh City, the lowest close since Jan. 30. The gauge has fallen 21 percent from its high this year on May 8, more than the 20 percent some investors consider a bear market. The measure traded yesterday at 9.4 times estimated profit, the lowest level since May 25 and a 33 percent discount to the 141- member MSCI South East Asia Index, according to data compiled by Bloomberg.

The Vietnamese gauge slumped 12 percent since Aug. 20 after Nguyen Duc Kien, a founder of Asia Commercial Bank (ACB), was detained for what the central bank called conducting “business illegally.” The lender’s former Chief Executive Officer Ly Xuan Hai was subsequently arrested for alleged economic mismanagement, according to a police statement. Moody’s lowered Asia Commercial Bank’s credit rating to B2 from B1 on Aug. 24 and put the company on review for future downgrades.

The arrests “will provide long-term investors with a buying opportunity,” Marc Faber, publisher of the Gloom, Boom & Doom Report, said by phone yesterday. “The market is now relatively inexpensive.”

Faber, chairman of Hanoi-based Indochina Capital with $480 million under management including about $20 million of Vietnamese equities, plans to purchase stocks in the next two weeks and is considering bank shares as well.

Foreign Purchases

Overseas investors bought a net 17 billion dong ($815,000) of Vietnamese equities on the Ho Chi Minh City bourse yesterday, according to data from the exchange. Foreigners bought a net $16.4 million of stocks last week, the biggest weekly purchases since the period to March 30.

The buying “shows that overseas investors are still interested in Vietnam,” Nguyen Thi Hoang Lan, deputy general director of the Hanoi stock exchange, said by phone yesterday. “They tend to look at the prospects of the market rather than just the recent sentiment changes and still consider Vietnam as a potential market for long-term investment.”

The VN Index’s discount to the MSCI South East Asia Index was the widest since Feb. 21 as of yesterday, according to data compiled by Bloomberg. The Vietnamese gauge was the third- cheapest 15 Asian benchmark stock indexes tracked by Bloomberg.

Asia Commercial Bank sank 5.9 percent in Hanoi trading, taking its slump since Aug. 20 to 27 percent. Moody’s lowered the lender credit rating following the “negative developments at the bank,” it said.

Bank Liquidity

“Moody’s is concerned that these developments have resulted in pressure on the bank’s liquidity and that there could be longer-term negative consequences for the bank’s franchise value,” the rating company said.

Fitch Ratings also placed Asia Commercial Bank on review for a possible downgrade, it said on Aug. 24. The lender’s long- and short-term issuer default ratings may be cut if there’s sustained weakening in the bank’s liquidity and reputation.

State Bank of Vietnam Governor Nguyen Van Binh said Aug. 21 the monetary authority stands ready to ensure banks have adequate cash after Kien’s detention. The central bank injected 13 trillion dong into the financial system through open-market operations on Aug. 22, the most over a seven-day period this year. It added 3.5 trillion yesterday.

Prime Minister Nguyen Tan Dung’s government is seeking to shore up a banking system saddled with the highest bad debt in Southeast Asia that credit-rating companies cite as a threat to the economy.

‘Positive News’

Vietnam Joint-Stock Commercial Bank for Industry and Trade, the second-largest lender, lost 2.6 percent, taking its slump since Aug. 20 to 12 percent. Saigon Thuong Tin Commercial Joint- Stock Bank, known as Sacombank, was unchanged at 20,000 dong today. It has declined 12 percent since Aug. 20. The central bank began an inspection of Sacombank in July and will complete the probe this month, Binh told lawmakers last week.

Last week’s arrests are “positive news rather than negative,” Faber said. Authorities are “not going to clean up 100 percent. They can clean up 30 percent, which would already be an improvement,” he said.

To contact Bloomberg News staff for this story: Nguyen Kieu Giang in Hanoi at giang1@bloomberg.net; K. Oanh Ha in Hanoi at oha3@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

How to Invest in Vietnam's Stock Market

By Todd Shriber, eHow Contributor

Asian markets have become popular frontiers for American investors. Asian countries, excluding Japan, are often considered emerging markets and have a reputation for rewarding astute stock investors with large returns. Most Asian nations, such as China and Singapore, have at least a few stocks that are traded on U.S. exchanges, but there are no Vietnamese stocks trading in the U.S., making an investment in Vietnam's stock market somewhat difficult for American investors. This article outlines the steps to begin your investment process 

Know the market. Vietnam is still a communist country, and its foray into a traditional stock market is fairly recent. The Ho Chi Minh City Stock Exchange is the country's primary stock exchange, and it is the only way for foreigners to directly access shares in Vietnamese stocks. Foreigners cannot own more than 49% of any Vietnamese stock.

2

Find a broker. This is the tricky part. If you're not able to travel to Vietnam to purchase your desired shares directly from the Ho Chi Minh City Stock Exchange, you have to find a broker that has access to the market. Few American brokers have access to Vietnam's stock market, and the ones that do will charge investors heavy fees for the privilege of investing there. Another option to consider is opening an account with a Vietnamese brokerage firm, but keep in mind they are not as well-capitalized as their American peers, and there is little or no protection for American investors in these accounts in the event of a brokerage failure or political unrest.

3

Prior to buying shares directly off the Ho Chi Minh City Stock Exchange, foreign investors need to file a registration form, an applicant information sheet and a background check for criminal activity with Vietnamese regulators.

Notaries both in the investor's home country and the Vietnamese embassy must review the documents.

4

If you open an account with a Vietnamese custodian broker, the broker will request that you fund the account with the currency of your home country, not Vietnam's local currency. For example, American investors must fund their accounts with American dollars.

5

You can place stock orders in person at the exchange in Ho Chi Minh City, at a custodian broker's office or via phone, fax or online.

Foreign economist says best investment opportunities in 2012 are in Vietnam

VietNamNet Bridge – Vietnam’s stocks are now too cheap and too attractive – this is the comment of “Why you should invest in Vietnam”, an article published on Forbes recently.

Peter Cohan, the author of the article, wrote that in the visit to Singapore in January, he met an experienced investment fund manager. The manager affirmed that investing in Indonesia, the market which was considered as attractive in 2011, has become “out of fashion,” and that the best investment opportunities in the region are now in Vietnam.

Vietnam’s stocks have become very cheap. The manager could list 20 shares in Vietnam which have the ratio of price on earning (P/E) at two times and the dividend yield at 12 percent at least.

Shares are believed to have reasonable price levels if the ratio of the P/E and income growth is 1.0 and less. Meanwhile, the ratio for Vietnamese shares is 0.14 – an ideal level.

The investment fund manager has also pointed out that the dividend yield, i.e. the ratio between dividends and share market price, is very high. The above said dividend yield of 12 percent should be seen as “very high”, if noting that the bank deposit interest rates in the US are now below one percent.

The very high dividend yield may not maintain for a long time, because the share prices would increase, while the dividends do not increase, while companies reduce the dividends. However, even if the dividend yield reduces to 8 percent, the annual cash dividend would still be attractive enough to cover the risks investors have to face when holding the shares.

The author of the article noted that in 2011, Vietnam’s economy met some big difficulties. Especially, the inflation rate jumped to 23 percent by August, which then forced the State Bank of Vietnam to raise the basic interest rate from 9 percent to 15 percent. Meanwhile, the VN Index of the Vietnamese stock market had dropped by 28 percent by the end of 2011.

However, it was the fall of the stock market which prompted many investors to buy shares of the big listed companies. Meanwhile, analysts believe that the purchases would bring big benefits to investors.

In January 1, 2011, Reuters reported that Diageo bought 23.6 percent of stakes of an alcohol company in Hanoi at 33 million dollars from VinaCapital. The commercial affair where Mount Kellett Capital Management invested 100 million dollars in Masan Group also drew the special attention from the public.

The article ended with the suggestion that international investors should invest in Vietnam’s stocks, especially the ones of the companies in the fields of food and drinks, which would witness the sharp increase in the demand from medium class in Vietnam.

Other foreign economists, though having reported the concerns about Vietnam’s macroeconomic problems (high inflation rate and dong depreciation), still say that Vietnam remains attractive in the eyes of foreign investors.

South East Asia Director of The Economist Justin Wood said on VnExpress that the interests of international investors in Vietnam have decreased, but remain big.

In previous years, Vietnam ranked the third among the investment destinations of foreign investors, after China and India. However, Vietnam has fallen by one grade to the fourth position, while the third position has been taken by Indonesia. However, he affirmed that the fourth ranking remains a very high position.

The high inflation and the dong depreciation are the two biggest concerns by foreign investors. The year on year inflation rate of 21-22 percent and the local currency depreciation of 15 percent per annum would not make investors feel secure.

However, the investors have been reassured when the government of Vietnam has sent a message that ensuring macroeconomic stability is the top priority of the government. Governor of the State Bank Nguyen Van Binh said to South East Asia Director of The Economist Justin Wood that the inflation rate in 2012 would be at one-digit level, about 8.5 percent, or it could be 12 percent in the worst scenario.

C. V