For all the concern that anti-China riots in Vietnam will deter foreign investment and curb economic growth, the 18-day flow of money into the country’s stock market suggests overseas money managers are unfazed.
Foreign investors were net buyers on the Ho Chi Minh City Stock Exchange every day since April 18, the longest stretch of purchases since January, as valuations declined to a four-month low. They added about $93 million to their holdings even as the benchmark VN Index (VNINDEX) slumped 8.8 percent.
Advance Emerging Capital, Samsung Asset Management and Jefferies Group Inc. say they’re still upbeat about Vietnam as inflation stays low, the government removes bad debt from banks and the prospect of a Trans-Pacific Partnership trade deal bolsters the outlook for exporters. Prime Minister Nguyen Tan Dung issued a directive on May 17 to prevent demonstrations after two people died and about 140 were injured in violence spurred by anger over a Chinese oil rig in disputed waters.
“Our view of the outlook for Vietnam remains bullish,” Samir Shah, an investment manager at Advance Emerging Capital in London, which oversees about $750 million, wrote in an e-mail. “Steady economic progress looks set to continue.”
China evacuated more than 3,000 citizens as of May 17 and Taiwan prepared to do the same. Prime Minister Dung urged his country to “display patriotism peacefully” while deploying hundreds of police and cordoning off a park near the Chinese embassy in Hanoi.
China Tension
The Vietnamese government said on May 7 that Chinese boats rammed its vessels, fired water cannons and used low-flying aircraft in a confrontation over a rig near the disputed Paracel Islands. The following day, China accused Vietnamese ships of provoking the situation by crashing into its boats.
The VN index has dropped 13 percent from this year’s peak on March 24. The gauge of Vietnam’s $51 billion stock market has a price-to-earnings ratio of 13, the lowest level on a weekly basis since January, data compiled by Bloomberg show. That compares with a multiple of 15 for the MSCI Southeast Asia Index.
“Although an escalation of tensions cannot be ruled out, the worst-case scenario would be trade-related embargoes or freezing of investment,” Sean Darby, the chief global equity strategist at Jefferies Group Inc. in Hong Kong, wrote in a note dated May 14.
Alan Richardson, whose Samsung Asean Equity Fund beat 96 percent of peers tracked by Bloomberg in the past five years, said in an interview on May 8 that Vietnamese shares are a “favorable buy at these levels.”
Taian Shutdown
More than a hundred Taiwanese companies suspended operations after protesters invaded premises and set fire to buildings, according to Taiwan’s Ministry of Economic Affairs, prompting the island’s government to seek compensation from Vietnam for the damage.
Li & Fung Ltd. (494), the world’s biggest supplier of clothes and toys to retailers such as Wal-Mart Stores Inc., said on May 15 that production at most of its factories in Vietnam may be delayed for a week because of the unrest.
“In the short term, in two to three months, we don’t expect to see a strong rally due to the political tensions,” said Tran Thi Kim Cuong, the Ho Chi Minh City-based head of equities at Manulife (Vietnam) Asset Management, which oversees about $426 million.
Foreign Flows
International investors have bought a net $188 million of Vietnam stocks in 2014, heading for the ninth straight year of purchases, according to data compiled by Bloomberg. Companies including PXP Vietnam Asset Management say Prime Minister Dung may raise foreign ownership caps this year, giving investors even more room to boost holdings.
U.S.-based exchange-traded funds focused on Vietnam have received a net $99.9 million this year, equivalent to almost 27 percent of their total market capitalization, according to data compiled by Bloomberg. That’s the biggest increase of all 12 Asian countries tracked by Bloomberg.
The Southeast Asian nation granted 291 new trading accounts for foreigners in the first four months of 2014, bringing the total to 17,022, according to data from Vietnam Securities Depository, which offers trading support services.
Policy makers are trying to bolster an economy that the World Bank estimates will grow 5.4 percent this year. Gross domestic product rose 4.96 percent in the first quarter of 2013, while inflation fell below 5 percent in February for the first time since 2009.
Vietnam’s government set up an asset-management company in July to acquire non-performing loans and has also allowed foreign investors to take bigger stakes in local lenders. Negotiators are still working to conclude the Trans-Pacific Partnership free-trade deal, which would link a region with $28 trillion in annual economic output, about 39 percent of the world total.
Foreign investors “think this is the best time to buy,” Tony Diep, Hanoi-based managing director at Indochina Capital, said by phone from Tokyo on May 15. “They like the valuation and they think the tension is just a short-term phenomenon.”
Bloomberg