It’s time to buy shares

The Hong Kong and Shanghai Banking Corporation (HSBC) has released a new report in a series of reports about Vietnam’s national economy and financial market.

In the report, HSBC’s experts advise investors to buy Vietnamese stocks at this moment.

At the end of January 2007, HSBC gave the forecast that the VN Index would stand at the 900 point level by the end of this year, and the forecast was repeated in its latest report. After declining by 25% after hitting its peak in March, the VN Index has come back to the forecast level, making share items on the bourse become attractive – once again.

Vietnam’s national economy maintains high growth rates, 8.1% in the second quarter of 2007, while the foreign direct investment (FDI) keeps flowing into Vietnam in big quantities ($6.7bil to date, much higher than last year’s level of $2.8bil). Vietnam’s export growth rate is at 19%.

Meanwhile, the growth rate of the profit of listing companies proves to be very satisfactory. The net profit of the 12 companies which own the 12 blue chips saw the impressive growth rate of 83% in the first half of the year. Some of them saw profit double or triple that of the same period last year.

However, the report reminded investors that the high profit of the listing companies came from financial investment deals. Vinamilk (the Vietnam Dairy Products Company), for example, would have gained the net profit of 23% instead of 36% if it had not made financial investments.

As many companies have issued additional shares, the EPS proves to be much lower than the net profit growth rate. Anyway, the EPS in the first half of the year still grew by 35% over the same period of last year.

Investment fund management companies in Vietnam share the same view that EPS growth rate will be between 22% and 25% this year, and 15-20% in 2008. Meanwhile, the EPS growth rate of Indian companies is expected to be 9% this year and 20% next year. The figures are 15% and 19% for Chinese companies, respectively, and 19% and 11% for Malaysian companies. Therefore, investors may see that the EPS growth rate for Vietnamese companies is relatively attractive.

The prices of the stocks on Vietnam’s bourse are believed to have returned to the actual values. In March, when the market was very hot, the P/E was 37, and now it has fallen to 31. If considering that the EPS growth rate is 25% this year and 15% the next year, the P/E of 2008 would be 20.

Though share prices prove to be not so cheap, HSBC still believes that the current price levels are close to the actual values. According to HSBC, the VN Index is likely to reach the 1,100 point level by the end of 2008.

Until now, Vietnam has not born impacts of the world’s stock market crisis. The majority of foreign currencies on Vietnam’s market come from domestic funds, which do not have plans to sell.

In fact, only a small part of the total capital of foreign investment funds has been injected in the market. Funds are still holding onto capital, waiting for the share issuances in the last six months of the year. HSBV thinks that some $3bil more remains undisbursed. Once the VN Index is around the 900 point level, which foreign investors think is close to the actual value, the capital will be pumped into the market.

This explains the recovery of Vietnam’s stock market in the context of the world’s gloomy market. While Asian markets have witnessed sharp falls of 18% between July 24 and August 17, Vietnam’s saw the slight decrease of 9.6%, the lowest decrease among Asian markets.


Nevertheless, HSBC has warned that Vietnam’s stock market will be influenced if the world’s market continues fluctuating.

HSBC does not share the same viewpoint as Vietnamese officials that massive IPOs, slated for the remaining months of the year, will cause indigestion in the market due to oversupply. HSBC thinks that demand will increase when there is supply, saying that the IPOs may serve as a catalyst for the recovery of the market.

Source: VNE