Vietnam’s stock market will prosper in 2011: HSBC
In latest Vietnam report, HSBC Bank believes that Vietnam’s stock market is likely to prosper in 2011. However, this report also stated, the macroeconomic risk in Vietnam is also an issue that investors should consider before participating in the market.

Unlike Vietnam Monitor recently, in which HSBC used to say Vietnam’s stocks more expensive compared to other markets in the region, in this Insight Vietnam, HSBC’s analysts “believed that it is time to have a different look at Vietnam’s stock. ”
According to HSBC, with the market value of $34 billion of Hochiminh Stock Exchange (HOSE), Vietnam’s stock market cannot be ranked at par with emerging markets in Asia such as China, India, Korea, Malaysia, Philippines, and Thailand. The country’s stock market has only been classified in the same group with Pakistan and Sri Lanka market. However, HSBC assessed that, with the rise of share prices in most other markets, the Vietnam market has begun to “return to the radar screen” of international investors.

Compared to the two markets in “the same class” of Pakistan and Sri Lanka, HSBC said, Vietnam’s market has a better chance, because the average value of daily transactions in Vietnam’s market nearly doubles compared to two other markets.
According to data released by HSBC, within three months, the average daily value traded on the floor City reached $44 million, compared with $28-29 million of the other two markets.
However, the value of these daily transactions is still very modest compared with the floor level of $23.164 billion of Shanghai Stock Exchange or $1.2 billion of the Thai market.

HSBC has offered five reasons to prove to the opportunities that Vietnam’s stock market can bring.

The first is the prospect of Vietnam’s robust GDP growth.
According to HSBC, Vietnam’s economic growth in 2011 is forecast to reach about 7.1 percent, higher than 15 percent compared with 6.1 percent forecast for Asia excluding Japan.

The second is that Vietnam is actively promoting market reforms, and filling the legal gap. The recent move by Vietnam authorities has been highly appreciated by HSBC such as increasing capital adequacy ratio for banks, tightening insider trading, enhancing information disclosure regulations, extending the time traded on the stock market, reducing T +3 to T +2, increasing the ownership rate of foreign investors in certain industries and others.

Third, the equitisation process of state enterprises in Vietnam is continuously stepping up. Forth, the upcoming Party Congress can be viewed as a catalyst for the market in the short-term.

Fifth, share prices in Vietnam appears to have been reasonable. This assessment is different from HSBC bank’s perspective recently when repeatedly saying that Vietnam’s stock is not cheap enough for investors. According to HSBC, the price/earnings (P/E) of Vietnam’s market is less than 38 percent compared to the Asian market excluding Japan, 21 percent compared to the Vietnam market since 2008.

“For these reasons, we do not think the VN Index will also continue to greatly reduce from the current levels,” HSBC forecasts.

However, the HSBC report candidly pointed out the risk that investors may encounter in the Vietnam stock market as the UK bank mentioned the macroeconomic risks, including trade deficits, the pressure of dong depreciation, and inflation concerns.

HSBC said that the government of Vietnam set a target deficit at $12 billion this year, not exceeding 20 percent of total exports. According to HSBC, this goal is within reach, so far this year, Vietnam has had a trade deficit $8.2 billion, equivalent to 18 percent of export turnover. However, “trade deficit cannot be resolved as long as Vietnam remains a developing country,” the report said.

Exchange rate of dong, HSBC said, Vietnam’s efforts to combat the trade deficit has led a risk to the currency devaluation. Since November 2009, the average exchange rate of dong against the US dollar on interbank market has fallen 10 percent, creating other challenges such as rising prices and erosion of investor confidence.

HSBC forecasts, the exchange rate (the average interbank) will increase to 19,800 dong/US dollar in the period from now until the end of this year from 18,932 dong per dollar at present.
The bank also forecast that inflation in Vietnam will reach 8.7 percent later this year and 8.5 percent at the end of 2011, compared to 8 percent targeted for 2010 by the government.

This report also has addressed risks from inconsistent macroeconomic policies in Vietnam. One example given by HSBC is that Vietnam’s dong devaluations caused sudden shocks for the market and unexpected effects.

Besides, according to HSBC, the issue of information transparency is still limited in Vietnam, which is also a point where foreign investors should note. For example, just a few listed companies that have departments responsible for providing timely financial information in English, or the only listed company must publish audited financial statements once a year. – TBKTVN