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Marc Djandji, director of the Research Department of Viet Capital Securities Co. (VCSC), says it is clear that Vietnamese equities have had one of their worst years ever, with the VN-Index losing around 30% year-to-date while almost 50% of the HNX-Index value has evaporated this year.
Vietnamese equities have by far been the worst performers among their regional peers. Investors during the year seesawed between optimism about the direction of government policies and fears about the possible effects that it could have on the economy and the stock market. The lack of confidence in the economy and the currency had domestic investors essentially moving to the sidelines.
According to a report of VCSC, the annual cumulative domestic net inflows into the Hochiminh Stock Exchange have become practically immaterial, with local investors injecting around a net VND320 billion so far this year. Foreigners were relatively more bullish, as they injected a net VND1,460 billion. These figures denote an utter lack of interest by investors.
Statistics show that there are 710 companies having listed stocks on the two bourses so far this year, rising by 68 ones compared to the end of 2010. However, most of them are small and medium-sized enterprises and just over 50% have chartered capital of over VND100 billion each. Moreover, poor business results this year deeply hurt the market and investor confidence, according to Lao Dong.
Djandji says that both markets are trading at or near their all-time lows in terms of price-to-book value and as much as 80% of all listed equities are currently trading below their book values.
“Of course, many of these stocks deserve to be where they are, but looking at the markets as a whole, my feeling is that current valuations provide an opportunity for a turnaround in Vietnam’s unloved, deep discounted equities,” Djandji says.
Dismal outlook for 2012
Looking into the fiscal year 2012, Fiachra Mac Cana, managing director of HCMC Securities Corp., thinks that some selling pressures in recent days will go into the first few months of the year.
“While interest rates will likely to come down in the post-Tet period, we are not predicting any acceleration in money supply as falling interest rates by themselves will not do much to improve market liquidity in our opinion. So, it is likely that some money will move into the market but we think this will be a trickle and not a flood. Furthermore, while credit growth at larger banks will accelerate next year, in contrast credit growth at smaller banks will be flat or in many cases shrinking,” Mac Cana says in his latest report.
“Even so as we hear news of drops in interest rates, it is very likely the market will react well in the short term, leading to some interesting trading opportunities. These trading windows may last a few days or as long as a week or so but in the absence of higher money supply growth, we do not think these gains will be sustainable,” Mac Cana predicts.
To achieve a turnaround in the long-term bear market would require acceleration in money supply or a sharp reduction in technical selling, a shift out of gold and the U.S. dollar back into dong-based assets, or a combination of all the three. Moreover, that will take a little more time, Mac Cana observes.
Meanwhile, Djandji of VCSC says the VN-Index is trading at 1.23 times of book value while the lowest it has ever been at the midst of the great financial crisis was at 1.2 times of the book value. Concurrently, the HNX-Index continues to hit new record lows and is now trading below book, at 0.71, for the first time ever. At the levels, valuations should provide a good margin of safety for contrarian, value investors who are willing to put some money to work.
SGT
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