Risk of forex rates is among major problems concerning foreign portfolio investors when pouring money into Vietnam’s stock market, said Marc Djandji, director of Analysis Department at Viet Capital Securities.
He said USD/VND exchange rate on the free market has risen by 10% in the past 12 months, so foreign investors will have to get higher profit to compensate the loss caused by forex adjustment.
Fears about further devaluation of Vietnam dong may be also discouraging foreigners, especially investment funds with hot money, due to short-term risks, though the local equity market remains attractive in the long run.
Other analysts, meanwhile, explained limited foreign capital inflows are attributed to Vietnam’s macoeconomic uncertainties, government policies, and poor corporate governance.
Although the average P/E in Vietnam is 9.87x, making local shares rather cheap compared to stocks in other regional markets, Marc Djandji raised concerns over the origin of corporate earnings.
He said most of listed companies have revenues from financial investment and property projects, which bring in unexpected income results. Thus, their profit growth is not contributed by core business activities.
Uncertainties of the macro economy such as rising forex rates, high interest rates and slumping share prices may make profit of many listed firms shrink, he said, noting that P/E is an important indicator only when corporate earnings are stably created by core business activities.
These factors explain the reason why Vietnam has received less foreign portfolio inflows rather than its regional peers, the analyst asserted.
However, he said when the country settles its macro economic problems and government policies are clearer, the equity market will attract foreigners again, especially when authorities allow the use of derivative tools.
Since the beginning of this year, foreigners have remained net buyers of Vietnam shares, trading in only some bluechips like BVH, HAG, FPT, DPM. But hot money has still stayed away from the country. (Securities Investment)
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