According to Don Lam, Vietnam’s capital market in 2015 showed more of a modest performance. Specifically, stock market yielded the lowest return in four years at 6.12%, but still outperformed other regional markets. The market suddenly became more volatile due to the devaluation of the Chinese yuan, and Fed’s increase of interest rate in late December.
The market still remained attractive due to a Price/Earnings Ratio (PER) <12, compare to 8% average earnings growth of listed stocks.
However, the low cash flow to stock market prevented upward re-rating of PER, despite positive catalysts. The year also saw the lowest foreign inflow in four years (127 million USD in 2015 vs. 240 million USD in 2012-2014 period).
Looking at 2016, Mr. Lam saw the market as having limited upside with selected opportunities. He expected the stock market return to increase to 10% with continued modest performance with limited potential for PER expansion.
However, earnings growth continues to be on the bright side. Some key risks for investors this year: devaluation of the dong (3-5%), increase of interest rate (about 100 basis points).
On the upside, there may hopefully be some clarity on foreign-ownership limit (FOL) regulations. Listed companies with good earnings growth and in sectors benefiting from strong domestic consumption is also a positive note.
Mr. Lam said that for 2016, investors should put their money into state-owned enterprise (SOE) privatization, Trans-Pacific Partnership (TPP) and FOL opportunities.
The government’s ambitious SOE privatization plan for 2011-2015 was partially accomplished and we should expect to see a new massive divestment plan to address government budget deficit.
He presented some great opportunities for private investors: Mobifone, SATRA, Ben Thanh, Vietnam Cement Company, Vietnam Rubber Company, Vinamilk, FPT Telecoms, Binh Minh Plastics and other medium-size SOEs with good assets, solid market share and strong management.
On the other hand, TPP and FOL are catalysts for further merger & acquisition activities. The signing TPP will push domestic companies to consolidate and improve efficiency while lifting FOL will allow more transactions to take place.
“The real estate market, one of almost everyone's favorite topics, is expected to see even more growth across all segments, from condominium to retail and hospitality”, said Mr. Lam.