Foreign economist says best investment opportunities in 2012 are in Vietnam

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VietStock FI English - 34 month(s) ago 4 readings

Vietnam’s stocks are now too cheap and too attractive – this is the comment of “Why you should invest in Vietnam”, an article published on Forbes recently.

Peter Cohan, the author of the article, wrote that in the visit to Singapore in January, he met an experienced investment fund manager. The manager affirmed that investing in Indonesia, the market which was considered as attractive in 2011, has become “out of fashion,” and that the best investment opportunities in the region are now in Vietnam.

Vietnam’s stocks have become very cheap. The manager could list 20 shares in Vietnam which have the ratio of price on earning (P/E) at two times and the dividend yield at 12 percent at least.

Shares are believed to have reasonable price levels if the ratio of the P/E and income growth is 1.0 and less. Meanwhile, the ratio for Vietnamese shares is 0.14 – an ideal level.

The investment fund manager has also pointed out that the dividend yield, i.e. the ratio between dividends and share market price, is very high. The above said dividend yield of 12 percent should be seen as “very high”, if noting that the bank deposit interest rates in the US are now below one percent.

The very high dividend yield may not maintain for a long time, because the share prices would increase, while the dividends do not increase, while companies reduce the dividends. However, even if the dividend yield reduces to 8 percent, the annual cash dividend would still be attractive enough to cover the risks investors have to face when holding the shares.

The author of the article noted that in 2011, Vietnam’s economy met some big difficulties. Especially, the inflation rate jumped to 23 percent by August, which then forced the State Bank of Vietnam to raise the basic interest rate from 9 percent to 15 percent. Meanwhile, the VN Index of the Vietnamese stock market had dropped by 28 percent by the end of 2011.

However, it was the fall of the stock market which prompted many investors to buy shares of the big listed companies. Meanwhile, analysts believe that the purchases would bring big benefits to investors.

In January 1, 2011, Reuters reported that Diageo bought 23.6 percent of stakes of an alcohol company in Hanoi at 33 million dollars from VinaCapital. The commercial affair where Mount Kellett Capital Management invested 100 million dollars in Masan Group also drew the special attention from the public.

The article ended with the suggestion that international investors should invest in Vietnam’s stocks, especially the ones of the companies in the fields of food and drinks, which would witness the sharp increase in the demand from medium class in Vietnam.

Other foreign economists, though having reported the concerns about Vietnam’s macroeconomic problems (high inflation rate and dong depreciation), still say that Vietnam remains attractive in the eyes of foreign investors.

South East Asia Director of The Economist Justin Wood said on VnExpress that the interests of international investors in Vietnam have decreased, but remain big.

In previous years, Vietnam ranked the third among the investment destinations of foreign investors, after China and India. However, Vietnam has fallen by one grade to the fourth position, while the third position has been taken by Indonesia. However, he affirmed that the fourth ranking remains a very high position.

The high inflation and the dong depreciation are the two biggest concerns by foreign investors. The year on year inflation rate of 21-22 percent and the local currency depreciation of 15 percent per annum would not make investors feel secure.

However, the investors have been reassured when the government of Vietnam has sent a message that ensuring macroeconomic stability is the top priority of the government. Governor of the State Bank Nguyen Van Binh said to South East Asia Director of The Economist Justin Wood that the inflation rate in 2012 would be at one-digit level, about 8.5 percent, or it could be 12 percent in the worst scenario.

Peter Cohan, the author of the article, wrote that in the visit to Singapore in January, he met an experienced investment fund manager. The manager affirmed that investing in Indonesia, the market which was considered as attractive in 2011, has become “out of fashion,” and that the best investment opportunities in the region are now in Vietnam.

Vietnam’s stocks have become very cheap. The manager could list 20 shares in Vietnam which have the ratio of price on earning (P/E) at two times and the dividend yield at 12 percent at least.

Shares are believed to have reasonable price levels if the ratio of the P/E and income growth is 1.0 and less. Meanwhile, the ratio for Vietnamese shares is 0.14 – an ideal level.

The investment fund manager has also pointed out that the dividend yield, i.e. the ratio between dividends and share market price, is very high. The above said dividend yield of 12 percent should be seen as “very high”, if noting that the bank deposit interest rates in the US are now below one percent.

The very high dividend yield may not maintain for a long time, because the share prices would increase, while the dividends do not increase, while companies reduce the dividends. However, even if the dividend yield reduces to 8 percent, the annual cash dividend would still be attractive enough to cover the risks investors have to face when holding the shares.

The author of the article noted that in 2011, Vietnam’s economy met some big difficulties. Especially, the inflation rate jumped to 23 percent by August, which then forced the State Bank of Vietnam to raise the basic interest rate from 9 percent to 15 percent. Meanwhile, the VN Index of the Vietnamese stock market had dropped by 28 percent by the end of 2011.

However, it was the fall of the stock market which prompted many investors to buy shares of the big listed companies. Meanwhile, analysts believe that the purchases would bring big benefits to investors.

In January 1, 2011, Reuters reported that Diageo bought 23.6 percent of stakes of an alcohol company in Hanoi at 33 million dollars from VinaCapital. The commercial affair where Mount Kellett Capital Management invested 100 million dollars in Masan Group also drew the special attention from the public.

The article ended with the suggestion that international investors should invest in Vietnam’s stocks, especially the ones of the companies in the fields of food and drinks, which would witness the sharp increase in the demand from medium class in Vietnam.

Other foreign economists, though having reported the concerns about Vietnam’s macroeconomic problems (high inflation rate and dong depreciation), still say that Vietnam remains attractive in the eyes of foreign investors.

South East Asia Director of The Economist Justin Wood said on VnExpress that the interests of international investors in Vietnam have decreased, but remain big.

In previous years, Vietnam ranked the third among the investment destinations of foreign investors, after China and India. However, Vietnam has fallen by one grade to the fourth position, while the third position has been taken by Indonesia. However, he affirmed that the fourth ranking remains a very high position.

The high inflation and the dong depreciation are the two biggest concerns by foreign investors. The year on year inflation rate of 21-22 percent and the local currency depreciation of 15 percent per annum would not make investors feel secure.

However, the investors have been reassured when the government of Vietnam has sent a message that ensuring macroeconomic stability is the top priority of the government. Governor of the State Bank Nguyen Van Binh said to South East Asia Director of The Economist Justin Wood that the inflation rate in 2012 would be at one-digit level, about 8.5 percent, or it could be 12 percent in the worst scenario.

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