With Vietnam (VNM) planning to raise the foreign ownership limit on its private sector banks, markets expect the financial sector in this Asian (AAXJ) (VPL) nation to do particularly well. However, there are some investment professionals who do not agree.
Vietnamese banks are uninvestable from a fundamental perspective
Frontier markets (FRN) (FM) fund manager, James Bannan of Coeli Asset Management, holds a different perspective. Vietnamese banks are “uninvestable from a fundamental perspective,” he told Frontera. Bannan, who has spent over 5 years in Vietnam, enumerated the following as key deterrents to investment in Vietnamese banks:
- Bad governance
- Deteriorating asset quality and rising non-performing loans, and
- Capital adequacy issues
Financials also happen to be one of the worst performing sectors in Vietnam so far this year (see chart above). Moreover, valuations for these banks are unattractive at present, as also pointed out by Thomas Hugger.
Vietnamese banks are always in a “boom or bust” situation
Similarly, Hong Kong-based Asia Frontier Capital’s chief executive officer and founder, Thomas Hugger, remains cautious on investing in Vietnamese banking stocks as they are always in a “boom or bust” situation. “The problem with Vietnam’s banks is that they are currently very expensive,” Hugger told Frontera in a recent conversation. Hugger finds valuations of Vietnamese banks far too expensive from an investment perspective.