Vietnam Takes Back Equity Crown as Growth Outlook Attracts Funds

(Bloomberg) -- The pessimism didn't last long.

Just a few short weeks after a selloff in global equities knocked Vietnam out of its spot as Asia's best-performing market this year, the nation has regained the crown. And this is just the beginning. The gains may extend, helping the VN Index surpass its March 2007 peak, as the gauge is forecast to reach 1,210 by end of 2018, according to a survey of 10 strategists by Bloomberg.

Investor appetite for Vietnam's equities has returned as economic expansion -- among the world's fastest -- and growth in corporate profits are in tact despite the recent turbulence in global markets. Foreigners have been net buyers of the country's shares this month even as they pulled a combined $14 billion from nine Asian markets tracked by Bloomberg.

“Earnings growth is expected to be better, at around 20 to 25 percent, and not just with the listed companies but also at newly-listed ones,” said Thang Uong, who oversees a $1 billion portfolio at Manulife Asset Management (Vietnam) Co. in Ho Chi Minh City. “We are very bullish this year.”

Vietnam's economy may expand at a pace similar to that of last year, beating the 6.7 percent target set by the government, Deputy Prime Minister Vuong Dinh Hue said in an interview last month. Average earnings per share for VN Index members is projected to increase 15 percent to about 66 dong next year, estimates compiled by Bloomberg show.

The Asian Development Bank also forecasts the nation's economy will expand 6.7 percent this year, the second-highest growth among Southeast Asian countries, trailing only the Philippines.

Growth prospects and the government's attempts to hasten the sale of stakes in state-run firms have helped more than double the nation's market values to $172 billion in the past year. The VN Index rallied 13 percent from the start of the year through to Jan. 26 only to lose most of those gains over the next two weeks amid the rout in global markets.

A swift reversal since Feb. 12 has sent the gauge above levels reached before the selloff, making the nation's shares more expensive relative to their regional peers. The VN Index trades at about 20 times 12-month projected earnings, versus a multiple of 14 for the MSCI Frontier Markets Index and 16 for the MSCI Asean Index.

“The expectation is too high, valuation is too high,” Chris Freund, Ho Chi Minh City-based partner at Mekong Capital, said in a phone interview. “Investors are getting enthusiastic, and eventually something will happen. Investor sentiment will turn from being overoptimistic to other direction again.”

For now, global investors seem willing to pay premium multiples, given the country's growth outlook. They've bought a net $432 million of local shares since Jan. 1, extending last year's record inflow of $1 billion.

To contact the reporter on this story: Nguyen Kieu Giang in Hanoi at giang1@bloomberg.net.

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Ravil Shirodkar

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