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The Vietnam News

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Around Asia's Markets: Is Vietnam the next China ?

HONG KONG - Vietnamese stocks are Asia's best performers this year, and the chief economist of the International Monetary Fund is touting the country as an "emerging China."

International investors, who have had too few stocks to choose from, may soon get alternatives in Vietnam. Companies are listing as the Communist nation expands its two-decade- long move to a capitalist system. Entry into the World Trade Organization this year may encourage companies to follow the lead of Intel and Ford Motor and invest in Vietnam. The stock exchange, the six-year- old Ho Chi Minh City Securities Trading Center, lists 49 stocks with a market value of $3.1 billion, according to Vietcombank Securities. Neighboring Thailand has 485 listings with a value of $132.3 billion.

"As more companies list on the stock market, I'd expect interest in Vietnam, underpinned by strong growth and foreign direct investment flows, to steadily increase," said Brad Aham, who manages the $1.7 billion SSgA Emerging Markets Fund at State Street Global Advisors in Boston. An average of just $6.6 million worth of Vietnamese shares traded daily in the past three months, compared with $314 million in Thailand and $3.2 billion in Hong Kong, Bloomberg data show.

The Vietnam Stock Index has surged 66 percent this year in dollar terms, the most of 413 Asian indexes tracked by Bloomberg. Chinese indexes are the next-best performers. Saigon Thuong Tin Commercial Joint-Stock Bank, known as Sacombank, in July became the first lender to trade on the stock exchange, raising the market's value by 50 percent. Bank for Foreign Trade of Vietnam will sell shares next year, followed by Mekong Delta Housing Bank, according to Tran Dac Sinh, director of the Trading Center.

The stock market started in July 2000 with just two listed companies and a total value of 270 billion dong, or $16.8 million. The International Monetary Fund's chief economist, Raghuram Rajan, said at a news conference in Singapore last week that Vietnam "was considered by many to be the "emerging China,'" owing to its "relatively strong rates of growth." The IMF forecasts 7.8 percent growth this year, the fastest of any developing Southeast Asian economy, according to the organization's Web site, while predicting that China will grow 10 percent this year. Standard & Poor's this month raised Vietnam's credit rating to two levels below investment grade, citing the nation's economic growth potential and commitment to market-oriented policies.

Christopher Wood, a strategist at CLSA, recommends that investors buy into Vietnam. "It's a very exciting story," said Wood. "In the next couple of years, we might see the Vietnamese stock market reach critical mass as more companies are listed. The stock market program is finally coming to fruition." He recommends investors put 3 percent of an Asia-excluding-Japan portfolio in Vietnam. At the moment, though, investing in the nation's stock market remains difficult for international investors, who typically seek companies with enough shares trading so that they can buy and sell without moving the stock price dramatically. By contrast with Vietnam, China has 1,381 listed companies in two markets, with a value of $650 billion.

"Vietnam is not on our radar screen at the moment because there isn't enough liquidity for us," said Nick Timberlake, who manages the HSBC Global Emerging Markets Equity fund in London. Overseas investors are restricted to a 49 percent stake in companies listed on the Ho Chi Minh City bourse and a 30 percent holding in Sacombank. What's more, investors seeking Vietnamese stocks must do so through a securities company registered domestically and must have local currency bank accounts. One avenue for foreign investors is through Vietnam funds incorporated outside the country, like the $193 million Vietnam Growth Fund, which is based in the Cayman Islands, and the $96 million Vietnam Dragon Fund, based in Bermuda. Both are managed by Dragon Capital Management of Ho Chi Minh City.

The number of targets on the Vietnamese exchange is picking up as the government sells shares in state-controlled companies. Vietnam in the next four years plans to increase the value of its stock market to between 20 percent and 30 percent of gross domestic product from 6 percent, Tran, from the Ho Chi Minh City Securities Trading Center, said in August.

Bloomberg News - September 21, 2006