Vietnam “still three years” from MSCI EM inclusion

The country is making progress on opening up for investment, but it's unlikely to win MSCI emerging-market status this year, says Kevin Snowball of PXP Vietnam Asset Management.
Vietnam “still three years” from MSCI EM inclusion

Vietnam has made strong progress in developing its stock market, but it is still at least three years away from inclusion in MSCI's emerging-market indices, said Kevin Snowball, chief executive at PXP Vietnam Asset Management.

The new government, in place since April, has said it would be ready for promotion from a frontier market to an emerging market by influential index provider MSCI by the end of this year. But Ho Chi Minh City-based Snowball feels that may be too optimistic.

“We are not bullish on the timing, but we are seeing more listings from the private and state sector, which would make the market bigger and more attractive,” he said.

He also told FinanceAsia recently: "the new government is showing it really understands what needs to be done to secure MSCI emerging-market status". 

Pakistan, promoted to the MSCI EM index from a frontier market in June, has shown Vietnam the way, noted Snowball, but a more realistic target date for inclusion would be three years from now.

The MSCI EM Index has a total capitalisation of $1.3 trillion, he said, and if Vietnam's weighting were just 1% of that, it would mean another $13 billion flowing into local stocks, which have a current market cap of $65 billion.

Snowball said he expected that figure to reach $100 billion within three years. That, along with three more years of currency stability, would raise investor confidence, he suggested.

Moreover, the new government appears to be more reformist than its predecessor, he added, given its recent announcements to offload public stakes in big local corporations and open them up more to foreign ownership.

Communist party general secretary Nguyen Phu Trong, won a power struggle earlier this year over the former prime minister, Nguyen Tan Dung, who stood down in April.

On the right road

Vietnam has undergone a decade-long, rather stop-start privatisation process, but Hanoi has indicated its commitment to pushing through with its divestment drive, as reported by FinanceAsia.

The State Capital Investment Corporation (SCIC) will reportedly sell 9% of dairy producer Vinamilk this year (it owns 45%). This follows the removal in July of the 49% foreign-ownership cap on the firm, the country's biggest listed company. The SCIC will also reportedly divest state capital in its nine remaining enterprises in 2017 and the rest of its Vinamilk stake incrementally.

Moreover, the government announced on September 1 that it would sell its stakes in Saigon Beer and Hanoi Beer, two prized assets, in tranches in 2016 and 2017. 

Given the progress on privatisation, overseas participation is set to grow, which should help attract institutional money to the market, which is currently dominated by retail investors, noted Snowball. “We need that to be diversified, and the easy way is through foreign investment.” 

He is optimistic that more companies will follow Vinamilk’s lead and apply to remove the foreign-ownership limit in permitted sectors. 

Vietnam is one of Asia’s best-performing markets this year, gaining 18% in US dollar terms. In the past two weeks the VN index has gained 3.8%.

But the market as a whole is still very cheap, said Snowball. While Vinamilk is at 25x price-to-earnings and Vietcom Bank is 3.1x its book value, outside the top 10 biggest stocks the market is only at 5-8x P/E, he noted.

¬ Haymarket Media Limited. All rights reserved.