The strong stock market recovery last month has triggered concerns about the speed and the extent to which it has happened, but experts insist stocks remain the most attractive asset class.

The VN-Index, the gauge of 170 stocks on the Ho Chi Minh Stock Exchange, has surged 71 percent this year, the third-best performer among 90 gauges tracked by Bloomberg worldwide. It regained 17 percent last month.

However, the recent surge has got many investors worrying the market could run out of steam soon.

Statistics from the World Market Indices website show the VNIndex rose at the fastest pace in the world last month, followed by Pakistan, Hungary and Austria.

However, the current price-to-earnings (P/E) ratio of Vietnam’s stock market remains lower than other markets all around the world, said Le Dat Chi of the Ho Chi Minh City University of Economics.

“According to the estimated earnings-per-share (EPS), which relies on listed firms’ business forecasts, the VN-Index’s P/E is around 18.8,” Chi said. “However, to compare with other stock markets, we have to use the P/E ratio, which is measured by the EPS over the last four quarters. By this yardstick, the VN-Index’s P/E is 19.7.”

Chi said those who think this P/E rate was too high are likely being more pessimistic than warranted. “The VN-Index remains more attractive than many others,” he said. Statistics show most markets around the world have P/Es higher than 20.

“P/E of Vietnam’s major industries also remain fairly good. For example, the average P/E of listed firms in the agriculture sector is 9.41, resource mining 10.39, construction 10.39, property 26.33, food 21.92 and banks 24.18,” Chi said.

But Chi warned that many other markets will likely correct after having risen sharply. “Vietnam’s market may follow that trend,” he added.

Upward momentum

Le Ba Hoang Quang, Hanoi-based head of research at Sacombank Securities, told Bloomberg that pressure on Vietnamese stocks was weakening.

“The stock market performed very well last week since it was supported by both global and local news,” Quang said. “Total volumes on both the Ho Chi Minh Stock Exchange and the Hanoi Stock Exchange have been well-maintained.

Quang said foreign investors have been coming back, and have turned net buyers, which is helping to improve local investors’ confidence.

“The economy has shown improving signs like the low consumer price index in August, enabling investors to continue buying and hold on to good stocks,” he said in an interview with the newswire.

“Together with strong demand, selling pressure has substantially reduced as announcements on a reduction in holdings from investment funds or institutional investors have been limited. It won’t put pressure on the index in the short-term.

“The stock market will continue to go up this week. However, we may still see corrections as some investors may sell in quite large volumes when stock prices meet their expectations.”

“I would expect the VN-Index to reach 600 by the end of October with daily trading volumes rising steadily,” said Ngo Huu Hung, chief analyst at Dai Viet Securities.