Given the macroeconomic stability and growth potential, as well as a low price-to-earnings ratio, investors can leverage opportunities to invest at reasonable prices, according to Vietnam’s leading investment funds.
Despite strong selling pressure from poor retail investor confidence, Vietnam’s stock market features compelling fundamental strengths. These include a P/E ratio of 11.4x, much lower than the five-year average of 14.5, as well as a 30% valuation discount versus Vietnam’s regional peers, VinaCapital stated in a report.
Earnings of companies listed on the Hanoi and Ho Chi Minh stock exchanges surged by around 30% year-on-year in the first quarter of 2022. The fund predicted the figure would be nearly 30% this year.
The value of the Vietnamese dong remains nearly unchanged year-on-year, despite a 15% surge in the US Dollar Index. VinaCapital believed the Vietnamese dong’s resilience indicates the underlying strength of the local economy, which in-turn supports the market’s earning growth and price appreciation.
The positive outlook of the Vietnamese stock market is also based on macro-economic stability, the fund added.
As consumption accounts for about two-thirds of Vietnam’s GDP, its robust ongoing rebound has bolstered VinaCapital forecast for 6.5% GDP growth this year.
Two main variables back the projection, including expectation of a 5% rise in "real retail sales" and the country's post-pandemic recovery, which is likely to add at least 2% to Vietnam's GDP growth, according to VinaCapital.
The plunge in Vietnam’s Covid-19 cases prompted the biggest increase in manufacturing employment in a year during April. Manufacturing accounts for over 20% of the country’s GDP and grew by a healthy 8% year-on-year in April, albeit a rising number of companies reported difficulties securing production inputs due to China’s zero-Covid policy, the report noted.
However, "China’s policy is another reason for companies to shift manufacturing to Vietnam, which saw record high foreign direct investment inflows in April," said Michael Kokalari, VinaCapital’s chief economist.
Dragon Capital reported that net profits of listed enterprises jumped by 36% year-on-year and 22% quarter-on-quarter, led by banking, raw materials, and retail with growth rates of 752%, 38%, and 23% respectively.
Given the bullish profit indications, the fund has revised its earnings per share growth forecast to 25% in 2022, much higher than the 12.5% annual average since 2010.
It is also believed that the government’s actions would direct cash flow from speculative stocks into quality stocks with a good basis, high profitability, and little legal risk.
With the falling stock price and rising profit growth, Vietnam’s stock valuation has become highly appealing, creating potential returns for long-term investors, according to Dragon Capital.
PYN Fund Management, a Finnish fund manager with 23 years of experience in Asia, holds the same view of Vietnam’s appealing stock price.
The market P/E has decreased from 14.1 to 10.9 following the VN-Index decline of 23%. "With this valuation, Vietnam has a stable economy and extremely cheap stocks," Petri Deryng wrote in a report published on May 19.