A fresh roll of the dice for 2008

[BTA]

Ho Chi Minh City Securities Corporation’s deputy CEO and
head of brokerage services Johan Kruimer is happy to make a judgement call. He
claims the market will soon stage a strong turnaround and Vietnamese equity
prices were likely to rise substantially over 2008 as all reasons for a
structural bull market exist.





“We feel earnings per share (EPS) growth could turn out to
be better than expected, estimating 10-15 per cent growth and capital increases
will be absorbed by the market and inflation is likely to moderate this year,”
said Kruimer.



Kruimer did not give a projection for the VN Index for 2008, but believed the
market was able to rally and reach levels of anywhere between 1,300 and 2,000
this year.



“Our VN Index target is 1,140 for the end of 2008, pegging on a forward PE
(price to earnings) of 28 with the expectation of 20.1 per cent earnings growth
in 2008,” said King Yoong Cheah, head of Mekong Securities’ research team.

Cheah said Vietnam’s stock
market would continue to trade at a premium against the regional markets thanks
to the continued equitisation programme, expected strong earnings growth,
increased market investibility and improved market transparency and possible
inclusion of Vietnam’s
index to the MSCI Indices series.



“We remain optimistic about the market’s performance for 2008. Valuations have
started to emerge and investors should start bargain hunting for good stocks
with strong fundamentals,” said Cheah.

Juerg Vontobel, chairman of Vietnam Holding Asset Management, added that rights
issues would probably be out of fashion in 2008 and Vietnam should be able to return to
the top of international rankings for EPS growth. “If so, this would attract
some ‘smart money’ back into the market,” said Vontobel.



“We expect that FDI flows will remain strong, and this may support the
development of more cross-border merger and acquisition activity, of which
there has been very little in Vietnam.
This could be a fillip for the equity market, as would more IPOs and listings
by some of Vietnam’s
larger private companies,” said Vontobel.

“We expect foreign participation to remain high with foreign portfolio
investment inflows to be $3.75-5 billion this year,” said Kruimer.

Looking ahead, equity strategists, however, said the performance of Vietnam’s
equity market would show much closer correlation to the main international and
especially to Asian stock markets.



“Consequently, the likely impending US
economic recession and the slowdown of various economies, will weigh down on Vietnam’s market indices, despite the fact that Vietnam’s
economic growth trajectory is projected to remain robust,” said Vontobel.

“High price volatility will continue and the market will not perform very
impressively in 2008 and certainly nothing like in 2006. That in turn will have
implications for the equitisation campaign, as it will be more difficult to
sell shares in large SOEs if demand for this equity paper is relatively
limited,” said Vontobel.



Spencer White, Thien Viet Securities’ chief strategic officer, added that the
first half of this year would be tough for share prices and equity valuations
would continue to erode. “The fact remains that the negative impact of the
global credit crisis is likely to reverberate through asset classes of all
types until mid-year. Global growth will slow, exports will decelerate and
inflation is likely to remain higher than central banks can tolerate. Investors
globally will remain risk averse, meaning that the prices of higher risk
assets, such as frontier markets, will continue to be weak,” said White.



White had severe reservations about the rate of earnings growth from Vietnamese
companies and thought that analysts were far too optimistic in their EPS
estimates.

“Heavy capital issuance in 2007 will dilute EPS growth this year, at a time
when high input costs are already beginning to squeeze margins. For the region
as a whole EPS growth is slowing to between 10-12 per cent, the average for Vietnam could
be much less than that,” said White.

Kruimer, meanwhile, said he had experienced an “ordinary” sell-off during early
2008, a situation that can best be described as the capitulation of bullish
investors. “The last bullish investors are finally giving up,” he said.



Kruimer added the problems in the Vietnamese equity markets were multiple. The
enormous demand for liquidity that has been created by various capital raisings
and IPOs over the past months has left a domestic vacuum on the buy side.

“Furthermore, accelerating consumer price inflation remains a concern, while a
booming real estate market and gold prices have certainly created alternatives
to equities,” said Kruimer, adding that the virtual closure of the foreign
exchange window by the State Bank led to increased difficulties for foreign
investors to enter the stock market.



Regarding foreign portfolio inflows, White believed they were likely to slow
down, mainly due to the compression in global risk appetite. Offshore investors
were becoming less forgiving of policy slippages and more demanding about
reasonable pricing, he said.

“As a consequence of the US
sub-prime crisis, substantial liquidity has been drained out of the global
equity markets recently,” added Vontobel. He said many international banks
would simply no longer be able to allocate as much of their own capital into
proprietary trading activity. Hedge funds will have to further de-leverage too.




“I would anticipate that dedicated country funds will continue to seek rises in
capital, but much of this now appears to be directed at more specific areas
such as property and infrastructure,” said White.

With a hard year in prospect, investors, especially retail ones, may find it a
difficult time for their investment scheme.

“Be conservative, be fundamental and invest a little time to understand what
you are buying,” said White, adding that investors should differentiate between
short-term trading opportunities and long-term winners.



Kruimer said investors should start to diversify and allocate some funds to
bonds that could be a good means of stabilising risks and rewards. Small cap
stocks tend to outperform at certain intervals of the bull market, but can
cause severe damage in a downturn.

“Times can also be tougher and to protect oneself, investors should not only
focus on profit, but also on risk and volatility,” said Kruimer.

White said he was not a market regulator, but would suggest removing the single
account requirement for investors of any type, revising up the foreign
ownership limit, or better still remove it altogether, and allow short selling.
“If introduced, it would be extremely positive,” he said.

Cheah added: “Further measures to increase the market transparency and
investibility such as strengthening of corporate governance practices and
further liberalising of the equity market should be encouraged.”



In terms of regulatory structure, a serious weakness is the absence of a sound
margin loan concept and equity strategists hoped the State Securities Commission
and the State Bank has already recognised the issue and are jointly looking to
draft regulations which will allow the introduction of a properly structured
lending mechanism against shares and bonds. “Completeness should also be
enhanced in the bond market where there are gaps in certain maturities. This is
very important as the bond market is likely to really take off in 2008,” said
Kruimer.

The year 2007 offered many milestones for the securities market, with a record
number of listed companies, the enactment of the Securities Law, record trade
volume levels, more retail investor participation and more than $5 billion
raised by dedicated country funds.



In 2007, the outside world discovered Vietnam as a portfolio investment
destination and a combination of foreign capital inflows and local enthusiasm
pushed the VN Index to its peak of 1,174 points in early March 2007, said
Kruimer, adding that what was missing was the ability of most of those
companies to raise capital in sufficient quantities.



White, however, said Vietnam’s
market had suffered growing pains, characterised by the sell off from late in
the first quarter till the end of 2007. After rising 144 per cent in 2006, the
VN Index ended 2007 at the 927.02 point mark, with just a 23 per cent increase
against 2006.

The development over 2007 was nothing more than a consolidation in the
magnificent bull market and the 2007’s market performance probably best
describes no loss, no gain, just unchanged, making 2008 a challenging year,
said Kruimer

[pennyguy]

Ho Chi Minh City Securities Corporation’s deputy CEO and
head of brokerage services Johan Kruimer is happy to m
said Kruimer

I have heard lot ò Vietnamese stocks is it gôd to invest in them right now