Vietnam’s Stock Market Jumps 30% In Past Year, Derivatives Trading Expected Shortly 2

Improving fundamentals

Vietnam’s stock market continues to outperform. The sustained momentum has been supported by:

  1. Increased investor interest as valuations remain attractive
  2. Privatization tide leading Vietnam’s stock market to rise
  3. Myriad attractive investment options within the consumer sector

The economy is doing well, with economic growth rising since last year. GDP growth was up from 5.5% recorded in 1Q16 to 6.7% in 4Q16. Moreover, attractive valuations are pulling emerging (EEM) (VWO) and frontier (FRN) (FM) market investors towards Vietnamese stocks. Foreign direct investment into Vietnam has also been rising fueling the growth momentum in the economy.

Vietnam’s stock market rally

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Reflective of the improving investment climate in Vietnam is the benchmark Vietnam Ho Chi Minh Stock Index which is up about 30% over the past year, and 8.23% YTD (as of March 22). The Vietnamese equity-tracking VanEck Vectors Vietnam ETF (VNM) is up 5.5% so far this year (as of March 22).

Vietnam’s stock market currently has more than 700 public firms on two exchanges with a combined market value of $99 billion. Currently, the biggest company listed on the exchange is Vietnam Dairy Products aka Vinamilk; the country’s largest dairy producer; part of which was privatized last year by the Vietnamese government. Vietnam now plans to begin derivatives trading on its exchange by May. The move is considered a stepping stone for Vietnam, which is currently among the three countries following Pakistan, expected to bag the emerging market (EEM) (VWO) status.

Attractive valuations

Valuations are attractive at present, reflected in the lower forward price-to-earnings ratios and the rising forward earnings. “Vietnam still has good value to express in terms of valuation and growth,” said Federico Parenti, a Milan-based fund manager at Sempione Sim Spa. “Dividends are pretty high and the potential is still there.”

Vietnam’s stock market is also being boosted by Vietnam’s privatization program, including divestment from certain state-owned enterprises and greater public-private partnerships in others.

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