Vietnam poised to deliver on market potential
HONG KONG - Long viewed as a great untapped emerging market, Vietnam finally appears poised to deliver on investor expectations that it can become a miniature China.
A spate of IPOs and international bond issues in the pipeline this year should enable global investors to access an economy expanding at more than 7 percent a year since 2002, with consumption now growing by 20 percent annually.
Merrill Lynch called Vietnam a "10-year buy" in a bullish new report, saying policy reforms and the development of capital markets are combining with favourable demographics and strong economic growth to create compelling investment opportunities.
"Wealth is coming from this very proactive government policy to drive private enterprise and encourage private capital," said Merrill Lynch strategist Spencer White, who allocates 3 percent of his model Asia-Pacific portfolio to Vietnam.
In October, Vietnam grabbed the attention of international investors when it sold a long-awaited $750 million (422 million pound) bond, its first sovereign debt issue in the international markets, attracting orders of more than $4.5 billion.
The BB-minus rated bond due in January 2016 was priced to yield 7.125 percent. Its spread has tightened, and the bond now yields around 6.40 percent.
Like its giant neighbour to the north, communist Vietnam has taken a conservative approach to restructuring its economy.
"The reform process is steady and consistent in terms of direction, but somewhat slow, especially concerning privatisation. The government's approach in that regard is very cautious," said Standard & Poor's analyst Agost Benard.
"It's quite clear Vietnam is following in China's footsteps as far as the economic model is concerned, and its very cautious and gradual approach to reforms and liberalisation."
Tipped to be a hot market in the mid-1990s, interest in Vietnam evaporated after the Asian financial crisis of 1997-98.
Now, surging foreign direct investment and the prospect that Vietnam could join the World Trade Organisation by 2007 bolster the case for investing in Vietnam, Merrill Lynch wrote.
A high literacy rate and a population of 82 million that is among the youngest in Asia add to the attraction.
Risks include a thinly traded stock market, the prospect that reforms could be derailed and inadequate power supply, Merrill said. Red tape, corruption and protectionism, meanwhile, are oft-cited deterrents to investing in Vietnam.
Niche market, full pipeline
Vietnam remains a niche market.
The stock market lists just 35 firms and one fund, Merrill said. Last month, the bourse's value more than doubled to over $1 billion with the trading debut of dairy producer Vietnam Dairy Products Co. (Vinamilk) .
The main Vietnam stock index <.VNI> has risen 26 percent since last August and opportunities should broaden this year with initial public offerings expected from Sacombank, Vietcombank and Asia Commercial Bank.
Others predicted to list include mobile phone operator VNPT and PetroVietnam. State-run Incombank aims to raise $3-$4 billion when it lists in 2007, state media said.
On the debt side, Electricity of Vietnam plans a $250 million bond in the third quarter.
The government-run Bank for Investment and Development of Vietnam (BIDV.L: Quotazione, Profilo), the number-four lender, will also issue bonds this year before going public in 2007, media said on Friday.
Stock market capitalisation is equal to just 4 percent of gross domestic product, compared with a regional average of about 130 percent and the government's 15 percent target, Merrill said.
In a sign of the country's liberalising investment stance, HSBC Holdings (HSBC.L: Quotazione, Profilo) (0005.HK: Quotazione, Profilo), Standard Chartered (STAN.L: Quotazione, Profilo) (2888.HK: Quotazione, Profilo) and Australia and New Zealand Banking Group Ltd. (ANZ.AX: Quotazione, Profilo) have bought stakes in local lenders over the past year.
Foreign investors can set up brokerage accounts, although there are ownership caps and little trading liquidity.
Another avenue into Vietnam is through funds such as the Dublin-listed vehicles run by Dragon Capital and Vina Capital's London-listed Vietnam Opportunities Fund, which has $170 million in assets under management and targets stocks, pre-IPO firms, debt and property, according to Merrill Lynch.
A recent report by donor institutions including the World Bank said policy reforms have resulted in entrepreneurship that is helping to lift Vietnam out of poverty.
"The next 5-year cycle offers the prospect for Vietnam to complete its transition across several dimensions: towards increasing reliance on market mechanisms, towards full membership in the global economy, and towards middle-income country status."
Reuters - February 3, 2006.
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