FiNETIK – Asia and Latin America – Market News Network

Market Update - Following a better than expected inflation print, the enthusiastic State Bank of Vietnam announced in the last week of August that they were in fact reversing course from the previous months announcement of lowering the credit growth figure from 30% to 25%.  Inflation is down to 1.97% YoY in August, and on a monthly basis only increased 0.24%, thus SBV fears of economic overheating have been assuaged and the country has reverted to the 30% credit growth target for 2009.

Otherwise, signs continue to point to an impressive macroeconomic rally in Vietnam.  When comparing growth rates to the same period last year, industrial production is up 5.6% and retail sales is up 18.4%.  The potential cause for concern amidst the general optimism is the estimated $1.7bn trade deficit for August; the highest monthly print thus far in 2009.  Still, at an estimated $5.1bn through the first 8 months of 2009, the trade deficit is still roughly only one third of level at the same point in 2008, and there is as of yet little cause for concern.

The VN-Index followed a relatively smooth upward path in August, finishing at 546.78 up 17.1%.  At this stage, in the absence of any major news events, the market seems content to move in line with the continued optimism over the macro-economy and a positive corporate earnings picture for 2009.

On the corporate front, companies have been busy issuing stock dividends and bonus shares after reporting very good 1H09 earnings. Of the 370 listed stocks on both exchanges, more than 40 have issued stock dividends and/or bonus shares with varying ratios over the last 3 months. The same is witnessed amongst the OTC companies. It is somewhat intriguing that retail investors often rejoice at such news and push up the share price of a company once it announces a stock dividend. We find this rather irrational as fundamentally a stock dividend or bonus share does NOT increase the value of a company; it is just splitting the same pie into smaller slices.

However, companies seem to have caught on this band wagon and are happy to shower the market with more bonus issues. Management of some companies we visited in recent months even confessed that they could have paid out cash dividend but chose instead to issue stock dividend because that was a surer way to push up their stock prices (?!). Of the bigger stocks, Sacombank, Vinamilk, Hau Giang Pharma, Hoa Sen Group, Phu Nhuan Jewelry and Pinaco have either set an ex-date for their stock dividends or are in the process of doing so. We are a bit concerned about this trend because some stocks appear to be manipulated or are being driven to very expensive valuations due to certain investors misunderstanding of stock dividend.

Our View – Some brokers have reported that Vietnam market is looking relatively expensive based on P/E08. Though we agree that Vietnam valuation is getting richer, we would highlight that historical P/Es are not very useful, especially during a recovering environment, it could be very misleading. Based on VAMs projected valuation, valuation for certain sectors in Vietnam remains attractive.

The stock market rally reflects the ongoing recovery picture for Vietnams economy. The uptrend will continue in the medium term although there will likely be corrections along the way as is always the case in a market driven largely by retail investors. Overall corporate profit may continue to grow by at least20 percent a year from now. Therefore, the Vietnam index will increase by at least the same extent in the next twelve months, perhaps reaching the 650-700 level by the second half of 2010.

Read full article and market statistics at VAM_Monthly_Newsletter_August_2009

Source: Vietnam Asset Management 09.09.2009