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Last updated: Tuesday, April 23, 2019


Vietnam Stock Prices No Longer Attractively Cheap

Posted: Tuesday, September 06, 2016

After a long strong rally, the Vietnamese stock market established a new plane. With the new valuation level, the appeal of the stock market seems to weaken to a certain extent in relation to regional markets like Thailand, China and the Philippines. The gaps are now negligible.
According to six-month earnings reports announced by 687 listed companies, their profitability surged from the same period while loss-making firms dropped sharply. Higher quarter-on-quarter earnings growth widened the current for credit to flow into the equity market. With a new price level established, Vietnam's stock valuations no longer hold an advantage over many markets in the region such as Thailand, China and the Philippines.
Sharp drop in loss-making firms
According to statistics from the State Securities Commission of Vietnam (SSC), the first quarter of 2016 witnessed 90 listed companies suffer losses but this figure fell to 69 in the second quarter. Besides, the returns growth of listed firms was just 1 per cent in the first quarter but it climbed to 1.6 per cent in the first six months. This result showed that business performances of listed companies are significantly improving and this is a fundamental element to support the development of the stock market in the future.
In the first half of 2016, among listed companies, 20 firms reported the biggest returns ranging from VND500 billion (SSI) to nearly VND6 trillion (VNM). Oppositely, 20 biggest loss-making firms incurred losses from VND30 billion (PVV) to VND1,100 billion (TTF).
Remarking on business performances of listed companies, an analyst from Saigon Securities Inc (SSI) said that three industries saw a profit decline in the first six months, including electricity, water, and oil and gas. These three industries in combination witnessed a profit drop of 40.5 per cent over the same period of 2015, followed by the food and beverage industry with a profit decline of 26.5 per cent.
The oil and gas industry bore the deepest slump of 65.3 per cent because global oil prices plummeted since the beginning of this year. PVD suffered the sharpest shrinkage of 92.5 per cent, followed GAS with 42 per cent and PVS with 23 per cent.
Reversely, resources companies led the growth side in the first 6 months. Their returns soared 66.6 per cent year on year. Steelmakers also outperformed.
The stock market has attracted a lot of new investors while many old investors have also returned to the market, especially in July when VN-Index broke through the strong resistance of 640 points and the daily trading value VND3,500 billion. In August, the market was still on the uptrend while correction sessions took minor values.
P/E equal to regional ratios
According to the Strategic Report released by Viet Capital Securities Company (VCSC), the growth of Vietnamese stock market in the first six months showed no signs of bubble. Price to earnings (P/E) ratio of the VN-Index likely moved in tune with regional trends. Regional stock markets seem to be going up and the current trend may push up current stock values. However, valuation indicators are also quite high.
According to SSI, given current prices, the P/E ratio of the Vietnamese stock market is 14.8 times while those in Malaysia and Thailand are 15.8 and 16.5, respectively. Even, the P/E ratio of the Vietnamese stock market is currently higher than that of China (14.7) and lower than Japan (19.5), the US (16.5) and Europe (20.7).
Hence, with current valuations, the stock market is no longer attractively cheap relative to other countries in the region. Given this ratio, what are the advantages of Vietnam to exert a pull on foreign investors?
According to economic experts, Vietnam's stock market needs to have highly competitive products in the long term. Currently, in addition to the main product of shares, the Hanoi Stock Exchange (HNX) is building a derivative securities market, expected to put into operation from the beginning of 2017. The Ho Chi Minh Stock Exchange (HOSE) will focus on developing warrants and coordinate with HNX to build common stock indices for the Vietnamese stock market. Vietnam targets to become a Top 5 stock markets in ASEAN.
Luong Tuan

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