Vietnam stocks may be up some 30% year-to-date, but US fund house Invesco remains skeptical, citing corporate governance issues and the lack of investible names in the market.
Jalil Rasheed, investment director and head of Singapore at Invesco Asset Management, is struggling to reconcile the bullishness on Vietnam with the quality of its companies. “The market has done very well but we could not find fundamental reasons to invest. It could be a sentiment-driven rally.”
Hence the firm still has zero investment in Vietnamese equities.
“The top 10 stocks on the main board are mainly government enterprises,” Rasheed said. “Corporate governance in Vietnam is poor. Businesses are not very attractive. It is a bit of a struggle to appropriate investments in Vietnam from a fundamental perspective.
Vietnam embarked on reform programmes in 2011 to make the market more attractive to investors, but Invesco feels the changes were not wide-ranging enough.
Rasheed argued that company management incentives are not linked closely enough to minority shareholders’ interests. He also pointed to issues such as the lack of infrastructure for fluid trading and the need to transact in Vietnamese dong.
Invesco’s investment staff visit the country annually to scope out the market, but Rasheed said they haven’t come back feeling that they have missed out on an opportunity.
While Invesco shuns Vietnam, equity managers with local operations there remain bullish on the market. They would argue that one needs an on-the-ground presence to invest there.
Singapore-based Kingsmead Asset Management, for instance, last month launched a small- and mid-cap Vietnam fund, after building a research team in Ho Chi Minh City.
Meanwhile, Bill Stoops, chief investment officer at Dragon Capital in Ho Chi Minh City, said: “Vietnam equities look relatively good now. They are not dirt cheap, like they once were versus Philippines, Malaysia, Indonesia and Thailand back in early 2011 before the turnaround began, but they still compare favourably.
“And they have probably never been cheaper than Bangladesh, Sri Lanka and Pakistan, but then Vietnam doesn’t have those countries’ political problems.”
He said Vietnam has gotten over its political risks and is now on a secure footing with relatively low inflation of 6%, a strongly anchored currency, and foreign exchange reserves have been rising with the external account surplus. The only laggard, he added, is the domestic economy, but retail sales, the property market and loan growth have all bottomed out.
“We see the 2014 PER [price-to-earnings ratio] at 14.5x and for 2015 at 12.9x, based on respective EPS [earnings per share] growth of +4.0% and +14.5%,” said Stoops.
Vietnam is looking “respectable” and like an “Asian tiger”, he added, arguing that images of the anti-China riots in May are now a distant memory. The incident was a short-term concern, he said. “The market went from 570 to 510, but then recovered almost immediately.”
Elsewhere in Southeast Asia, Invesco is overweight Thailand and Indonesia relative to the MSCI Southeast Asia index. The firm likes their consumer, banking and pharmaceutical sectors, but does not invest in construction, technology or mining companies because earnings in these sectors are very cyclical and beyond the control of management.
Invesco is underweight Malaysia and Singapore relative to the benchmark. “Singapore is our largest country exposure in the portfolio and will likely remain so in the near future due to the solid companies we find there,” said Rasheed.