Vietnam Stocks Nearing Record High Build a Case as a Haven

(Bloomberg) -- Vietnam's stock market is building a case to be a safe haven among developing-nation peers, bolstered by a reopening of trade and tourism, accelerating economic growth and rising corporate earnings.

The benchmark VN Index is up over 1% this year, outperforming the nearly 8% decline in a MSCI gauge of Asia frontier market stocks. The index is just 0.4% shy of an all-time high and could continue its climb despite elevated inflation and headwinds from the war in Ukraine, money managers say.

Company fundamentals are one key reason for the optimism. Profit growth of the top 60 firms is expected to average about 23% this year on a free-float adjusted basis, said Bill Stoops, chief investment officer of the nation's largest fund, Dragon Capital Group Ltd. Leaders like banks and property developers could even see growth of 30% compared to a year ago, he said.

Stoops, whose $6.4 billion firm mainly focuses on domestic companies, added that Vietnam's trade surplus and small foreign debt cushions the economy from higher import costs. He prefers banks, property and steel stocks as well as IT-services providers like FPT Corp.

Investors are mulling the impact of Vietnam's border reopening to foreign travelers after two years of Covid-related restrictions on the country's economy. The government expects economic growth of as much as 6.5% this year, Southeast Asia's fastest, as industries like manufacturing and tourism extend recoveries. Growth was about 2.6% last year. 

Earnings Impact

First-quarter earnings reports starting this month are expected to be positive, led by banks, real-estate and consumer firms, said Tran Hoang Son, head of market strategy at MB Securities. Expectations about bonus shares or dividends could also provide a catalyst, he added.

Vietnam stocks are top picks in Ruchir Desai's portfolio at Hong Kong-based Asia Frontier Capital Ltd. A positive trade surplus thanks to higher exports as well as increasing foreign direct investment will allow the country to manage the impacts of higher U.S. interest rates, he said. 

Coupled with stronger earnings growth in the second half of the year, that could spark a “further re-rating” for domestic equities, he added.

Still, the war in Ukraine remains one of the biggest risks given that the strain on global supply chains and higher food and oil prices could ultimately hurt the inflation-sensitive VN Index, Desai said.

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