Why You Should Not Invest In Vietnamese Banks Despite New Ownership Limits 1
Hanoi, Vietnam - Feb 18, 2017: Building of The State Bank of Viet Nam in Hanoi capital. The State Bank of Vietnam is the central bank of Vietnam and known as the Indochina Bank in the past.

Vietnamese banks to see better days ahead?

With Vietnam (VNM) planning to raise the foreign ownership limit on its private sector banks, markets expect the financial sector in Vietnam to do particularly well. However, this alone is not enough reason for Hong Kong-based Asia Frontier Capital’s chief executive officer and founder, Thomas Hugger, to invest in the country’s financial sector.  Asia Frontier Capital aka AFC, currently has $50 million worth of assets under management, with about $30 million allocated to its dedicated AFC Vietnam Fund.

Why AFC is not buying Vietnamese banks

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. Looking at banks which are trading near or below book value; such as Deutsche Bank (DB), which trades at 0.4 times book value or Credit Suisse (CS) at 0.8 times book value or UBS (UBS) trading at 1.1 times book value; makes it difficult to justify the larger banks in Vietnam which have at times traded at 2 to 3 times book value.

Looking at the Ho Chi Minh index components, banks were trading at a 1.35 average P/BV ratio as of February 17, 2017. Average P/BV for the Ho Chi Minh index’s financial sector came out to be 1.35 as well.

TickerNameGICS Ind NameWeightPricePrice to Book Value per Weighted Diluted ShareYear To Date Total Return – Current
VCB VM EquityBank for Foreign Trade of Vietnam JSCBanks8.491677383002.808.04
CTG VM EquityVietinBankBanks4.336741189001.1230.91
BID VM EquityBank for Investment and Development of VBanks3.560501169001.3619.01
MBB VM EquityMilitary Commercial Joint Stock BankBanks1.528501147501.005.36
STB VM EquitySaigon Thuong Tin Commercial JSBBanks1.006801110000.8616.40
EIB VM EquityVietnam Export Import Commercial JSBBanks0.784241103000.9414.44


Moreover, Vietnam has over 1100 listed companies trading at its stock exchanges, which provides ample opportunities to look at outside of the financial sector. Hugger likes to pick companies with attractive valuations and performance expectations. “Yes, banks will likely go up, but we would rather invest in a company with lower valuations, where we expect to have a better return,” Hugger told Frontera.

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More foreigners buying into Vietnam’s banks could easily lead to prices going up by say, 10%. But, Hugger would rather invest in an industrial or consumer sector firm with a view to a much larger gain.

Trump’s TPP withdrawal should have a minor impact on Vietnam

With the U.S. President Donald Trump withdrawing his nation from the Trans-Pacific Partnership or the TPP, emerging (EEM) (VWO) and frontier (FRN) (FM) markets such as China, Mexico, Vietnam, and Indonesia — which have long served as low-cost manufacturing hubs to the US (SPY) under the TPP open trade policy — stand to be impacted. Read, Will Trump’s TPP Withdrawal Shatter Malaysia and Vietnam’s ‘Mighty Five’ Dream? for more perspective on the topic.

The impact should be felt more by export-oriented companies and companies belonging to the consumer and consumer-related sectors. Hugger believes that Trump is for now focusing more on Mexico and European markets, and how he is going to approach smaller markets such as Vietnam is uncertain as of now. If he penalizes China, Vietnam could actually benefit.

Hugger revealed that his firm’s portfolio currently has just 1 or 2 Vietnamese companies that are into exports. These include Ben Tre Aquaproduct Import & Export (ABT) and Sao Ta Foods (FMC). ABT is engaged in seafood processing for exportation, while FMC is engaged in farming and processing prawns and shrimps.

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