Vietnam Stocks Could Hit a 10-Year High in 2017: Analysts

The VN Index will rise to 745 by the end of 2017, or 12 percent above its 2016 closing level, according to the average estimate of 11 analysts surveyed by Bloomberg News. That compares with a projected 10 percent rise for the MSCI AC Asean Index, based on the consensus price target of its constituents.

 The Vietnamese stock measure hit an all-time high of 1,170.67 in March 2007 before a sharp sell-off in the wake of the financial crisis. The index has rebounded about halfway back, and rose 89 percent gain over the past five years, trailing only Shenzhen and New Zealand among Asian gauges. It has gained 2.6 percent so far this year. 

"We keep a positive outlook for the market as we expect the economy to continue growing, driven by the rise in foreign direct investment and strong manufacturing,” said Thang Uong, who oversees a $730 million portfolio at Manulife Asset Management (Vietnam) Co. in Ho Chi Minh City. "The faster pace in state-owned enterprise reforms also attracts foreign investors,” he said.

Thang predicts the VN Index will rise about 10 percent this year and recommends consumer discretionary, healthcare and commodities shares.

 The government aims for GDP growth of 6.7 percent this year, which would be the fastest pace since 2007. Disbursed foreign investment surged to a record $15.8 billion last year, while pledged foreign investment climbed 7.1 percent, government data show.z

Growing Market

 In addition to economic expansion, gains in Vietnamese stocks are expected to continue on the government’s efforts to sell stakes in companies and push more firms to list shares. Vietnam’s Prime Minister Nguyen Xuan Phuc last week said in a Bloomberg TV interview that the government will increase the limits of foreign ownership in banks.

 State Capital Investment Corp., the government’s investment arm, sold 5.4 percent of its stake in Vietnam Dairy Products JSC, in a long-awaited sale in December. Saigon Beer Alcohol Beverage Corp. and Hanoi Beer Alcohol Beverage Corp. are among companies that the state aims to divest this year.

The government has also pushed companies to list shares on the exchange, which will be a "big theme” for the market in 2017, according to Marc Djandji, head of institutional sales at Rong Viet Securities Corp. The market has seen listings of several large companies already in January, including Vietnam Airlines Corp. and Vietnam National Textile & Garment Group. 

Djandji forecasts the VN Index will rise about 11 percent this year and recommends sectors including consumer, building materials, tourism and transportation.

Valuation

Strong gains in Vietnamese shares have driven up the market’s valuation. The benchmark VN Index is trading at 14 times 12-month projected earnings, compared with the MSCI Frontier Markets Index which is at 11.4 times and the MSCI Emerging Markets Index which is at 12 times, according to data compiled by Bloomberg.

The VN Index rose for the first time in three days and closed up 0.6% to 686.26.

With Vietnamese equities still vulnerable to external risks including rising U.S. interest rates and uncertainty around the direction of China’s yuan, share valuations look "unattractive,” said Hoang Viet Phuong, head of of institutional research and investment advisory at Saigon Securities Inc. in Hanoi. Even so, Phuong predicts the VN Index will increase another 10 percent to 11 percent this year.