Asia market round up: China's hot... Vietnam's hotter
PHAM MINH HUONG is caught up in something exciting and at the same time rather worrying. "Right now I am standing in the middle of the market, and I can feel the heat," she says. "It has become fashionable to talk about it at every dinner party and it has become so popular even students are participating."
It’s hard to tell at first whether the chairwoman of Ho Chi Minh City-based brokerage and investment bank VNDirect Securities is talking about Vietnam’s red-hot stock markets or the Lunar New Year carnival that’s clattering away behind her but she quickly clarifies her remarks.
"People have forgotten that stocks are so high – for them it’s reasonable," she laments. "They don’t realize the trend is so high. They don’t look at the risk. They only look at how much return they are getting. It’s all about too much easy money."
Her concerns are plain to see. Vietnam’s stock markets rose by more than 50% in the first quarter of 2007, after shooting up 144% in 2006. Precise figures are hard to come by in this still tiny, fragmented market but fund managers estimate that between $5 billion and $6 billion in fresh capital, mostly from foreign institutional investors, has flooded into Vietnam in the past three months alone. That in turn has forced trading turnover to swell – from $5 million a day throughout September 2006 to $55 million a day in the first six weeks of 2007.
Most of the fresh capital has been sunk into blue chips by the big investment banks – notably Citigroup, Deutsche Bank, HSBC and Merrill Lynch – keen to offer their clients a basket of viable Vietnam stocks. They have been joined by large Vietnam-based funds run by such managers as Dragon Capital and VinaCapital. But a significant proportion has come from retail investors keen to cash in on what might appear to be a once-in-a-lifetime investment opportunity; a paper-based gold rush.
The result has been a spiralling in values. Shares in Vietnam’s biggest corporate, technology and telecommunications distributor, FPT, are trading at 85 times earnings; the market itself is trading at 45 times trailing earnings, compared with just 20 times earnings in two, much larger, emerging Asia markets – India’s and China’s.
That investors – particularly early birds that spotted the country’s potential back in 2004 and 2005 – have made money from Vietnam’s stock boom is undeniable. One dollar invested in VinaCapital’s $720 million Vietnam Opportunities Fund on listing in January 2004 on London junior market Aim had yielded $3.80 by February 27 this year.
Such success has dragged in capital from all sorts of likely and less likely places. Hong Kong-based JF Asset Management in December 2006 launched a $50 million Vietnam Opportunities Fund that was fully subscribed on the first day. The same month, DWS Investments of Germany raised $388 million for its DWS Vietnam Fund, enabling its European clients to invest in leading Vietnam corporates. And an Israel-based fund run by the Halman-Aldubi group launched a $14 million fund.
So by February this year Vietnam’s authorities felt sufficiently concerned to step in and try to damp down the market a little.
Many investors fretted that Saigon’s finest bureaucratic minds would try to solve the problem by throwing their weight around – setting strict capital controls such as those imposed on unhappy foreign investors in neighbouring Thailand.
But Vietnam’s market regulators have, to the surprise of many, taken a softly-softly approach to solving the problem. On February 23, deputy prime minister Nguyen Sinh Hung denied publicly that Vietnam was considering tightening foreign exchange controls, restricting international capital flows, or forcing foreign investors to hold stock or bonds for at least a year after their purchase.
"Vietnam has not had any such policy," he stated, adding that "imposing administrative measures [in order to cool the markets] is not right". Clearly, Hung has been watching and learning from the US Federal Reserve: sometimes the best way to damp down a market is to suggest that measures will be taken if it does not cool itself.
At first the approach worked, with shares moving sideways over the next few days. But then the bull market kicked back into gear. Shares on the VN-Index in Ho Chi Minh City rose 4.48% on February 26 and 3.4% the following day, ending at an all-time high of 1167.36, with turnover averaging $70.2 million.
The government is therefore faced with taking more direct steps to cool the market without choking off foreign capital. Vietnam’s market regulator, the State Securities Commission, is also desperate to sell shares in, or "equitize", a clutch of unlisted blue-chip corporates. Those offerings are expected to raise up to $10 billion in 2007, if market sentiment remains this robust.
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"[The authorities] are genuinely pro-market, but like many smaller markets they are finding it hard to know what to do"
Garry Evans, HSBC |
HSBC’s pan-Asia equity strategist, Garry Evans, believes the next step will be to impose some sort of capital gains tax on investors. "The authorities are going to have to find a way to slow [investor] interest and make the stocks less interesting without killing the long-term growth story," he says. "[The government] needs foreign capital but foreigners have become more speculative, and they’ll have to do something or an even bigger bubble will be created."