P/E of over 20 times, does Vietnam’s stock market remain attractive to foreign capital?

12-Jan-2018 Intellasia | DTCK | 6:00 AM Print This Post

In 2017, foreign capital flows played an important role in the development of the stock market. With the current valuation, the market is no longer cheap compared to many countries in the region. The question is that what will be the factor that maintain the attractiveness of Vietnam’s stock market with foreign investors?

Price-Earnings Ratio (P/E) of Vietnam’s stock market is higher than many markets.

Data from Bloomberg and FinPro showed that, the P/E of the stock market of Vietnam by the end of January 8th 2018 was 20.2 times, higher than may many other similar markets in the region, such as Pakistan (P/E of eight times), Malaysia and China (P/E of 16 times), Thailand (P/E of 18 times); and close to the markets with the highest P/E in the region such as Indonesia and the Philippines (P/E of 22 times). general director of Maritime Securities Company Mac Quang Huy said that “the stock market of Vietnam is no longer cheap in the region”.

Meanwhile, Nguyen Duc Hung Linh, director of analysis and investment consulting for individual customers at Saigon Securities Company (SSI) believed that many stocks are having higher increase in price than the profit growth of the businesses, leading to the rise in valuation and market risks.

Linh questioned whether the market is still be attractive if it is no longer cheap in the region, while it much relied on foreign capital flows in 2017.

Nguyen Tri Hieu, a finance and banking shared that “I look at the development of the stock market with caution. As working in the banking sector, I always evaluate from the risk side. The stock market grew well in 2017 but I do not think it was stable and sustainable growth. We have to do research on the investors who pour money in, how much, and from which country; how that amount of capital flows in and out, and whether the investors come to Vietnam to seek profit and quit when the market is unstable?

Opportunities remain huge

The stock market of Vietnam may be less attractive as it is now more expensive than many regional markets, but Huy from Maritime Securities Company believed that there are new attractive factors to be added.

Huy said that there are investment opportunities as the profit of listed companies is forecasted to continue rising sharply at about 20 percent in 2018, and some stocks are still priced at attractive levels. In addition, the plans to equitise and divest state capital of some large and effective companies will be good opportunities for investors in general and foreign investors in particular to seek profit this year.

Thomas Felix Baden, Acting Chief Executive Officer of United Capital Management Joint Stock Company (Unicap) said that equitisation is a way that Vietnamese market is expanded to attract foreign capital.

“Vietnam has a lot of potential to attract foreign investors. In particular, the population of 95 million people creates a large consumer market. Vietnamese government is doing well its job in supporting foreign businesses in trade and investment. Since, Vietnam is moving from agriculture to industry, foreign businesses entering Vietnam can easily find hard-working and skilled workers, said Thomas.

What determines the level of foreign capital attraction of Vietnam’s stock market in the global investment capital flows?

Huy believed that there are 13 factors influencing this capital flow. In particular, the external factors include the economic growth of other countries; the USD and US government bond interest rates; the fluctuations of USD and other major currencies such as British Pound, euro, Chinese Yuan, and Japanese Yen; geopolitical volatility in the stressed regions of the world; the profitability of other risk-free assets including income from government bonds of developed countries; the expected return of the stock market, especially emerging markets.

Internal factors of Vietnam include the GDP growth, the USD/VND exchange rate, the high profitability from investing in stock market for investors, the transparency and new investment opportunities, the ease of transferring capital in and out of Vietnam, the size of the stock market, market liquidity, and the improvement of new products.

 


Category: Stocks, Vietnam

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