Vietnam’s market cools – but long-term it looks excellent

published 8 February 2008

"The glow has dimmed" on Vietnam's young market, says Grant McCool on Reuters.com. The Ho Chi Minh index has slid by almost 30% since it peaked last March. Investors had been looking forward to a wave of privatisations. But high valuations for recent flotations investors were asked to pay 11.5 times book value for a major bank have dampened sentiment and forced the government to slow the sell-off process. The authorities clearly made an unrealistic assessment of the prices foreign investors would accept, says Christopher Wood of CLSA.

Meanwhile, their efforts to control inflation of 14% have included restricting the supply of the dong, the local currency, which has limited overseas investors' ability to buy shares. And local investors, discouraged by stock slides and the global outlook, have begun to turn their attention to the property market.

But if the near-term outlook is unexciting, the big picture remains compelling. The economy has expanded by an annual average of 7.5% since 2000; a major exporter of rice and coffee, Vietnam is now establishing itself as a low-cost production centre, with labour costs around half those in China's industrial zones. That helped spur a 68% rise in foreign investment pledges last year. Low costs, along with the Confucian work ethic and highly-educated work force it boasts 90% literacy, compared to 61% in India "make it a solid long-term bet to assume Asian tiger status", says Martin Hutchinson on Breakingviews.

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One way to cash in on Vietnam is the Aim-listed Vietnam Opportunity Fund (VOF), says Maanraj Singh of Profit Hunter; it has plenty of money to exploit weaker market conditions. Global jitters may well dent the price further short-term, but given that it is trading at a slight discount to its net asset value, but usually trades at a premium, it seems cheap enough to tuck away now.

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