VietNamNet Bridge – The world’s leading financial group, Merrill Lynch, which once highly praised Vietnam as a pioneer market and advised investors to inject money in Vietnam’s stocks, now says that Vietnam’s market is not attractive. It was a big surprise to everyone when Merrill Lynch on July 5 released a report saying that Vietnam’s stock market was eroding and suggested reducing the level of securities investment in Vietnam to zero.
The report on investment strategy in Asia-Pacific in 2007 was conducted by a group of researchers belonging to Merrill Lynch.
Merrill Lynch’s recommendation to withdraw capital from Vietnam was made based on four factors: 1. transaction value on the official bourse, 2. VN Index fluctuation, 3. EPS (earning per share) index and 4. P/E (price/earning).
Merrill Lynch’s recommendations for investment allocation in Asia-Pacific (excluding Japan) | Country/territory | Investment allocation (%) | EPS growth rate (%) | PE | | 2007 (*) | 2008 (*) | 2007 (*) | 2008 (*) | | Vietnam | 0.0 | 10.0 | 8.0 | 39.5 | 36.2 | | Indonesia | 0.5 | 41.5 | 19.7 | 16.7 | 13.9 | | Thailand | 1.0 | (0.1) | 16.0 | 10.8 | 9.1 | | Philippines | 2.0 | 9.5 | 9.7 | 16.0 | 14.6 | | Pakistan | 2.5 | 12.4 | 12.5 | 11.2 | 9.9 | | India | 2.5 | 17.9 | 12.7 | 17.4 | 15.4 | | Malaysia | 5.0 | 13.3 | 7.2 | 18.0 | 16.8 | | Singapore | 7.2 | 12.2 | 12.2 | 18.3 | 16.3 | | Hong Kong | 9.0 | 17.0 | 6.3 | 15.6 | 14.5 | | Taiwan | 10.5 | 22.0 | 22.5 | 15.9 | 13.0 | | China | 14.0 | 22.8 | 20.7 | 18.9 | 15.6 | | ROK | 17.8 | 7.0 | 23.0 | 15.3 | 12.4 | | Australia | 28.0 | 9.2 | 6.2 | 16.7 | 15.4 | | Total | 100% | (*) forecast figures | The average transaction value of the HCM City bourse has declined to $30mil a day, and that of the Hanoi bourse, to $7mil, down from the $60mil/day level seen in the first days of the year, the report said. According to Merrill Lynch, Vietnam’s stock market will see things similar to what happened in Pakistan last year. Karachi Stock Exchange 100, the barometer of Pakistan’s stock market, increased by 250% from 2001-2005, while it rose by 5% o nly in 2006. In Vietnam, the VN Index increased by 145% last year after increasing by 85% two years before. The index has risen by 35% so far this year – it was 55% in the first three months of the year. The report says that there are a few factors that can help raise the VN Index at this moment. Vietnam obtained a very impressive high growth rate of GDP in the first months of the year. However, the problem lies in the fact that domestic companies all want to issue more shares, which makes the average EPS low, at 10%. The P/E index, according to Merrill Lynch’s researchers, has reached 39.5%, while the figure is 20% only in other regional markets. In order to show that the stock prices in Vietnam are not attractive, the researchers have quoted the figure released by Bao Viet Securities Company as saying that the P/E of Vietnam is 32. The report has also quoted Dragon Capital’s viewpoint, an investment fund management company, on the unsatisfactory share auctions of Phu My Fertiliser and Bao Viet Insurance: the final prices of the share auctions were much lower than the levels expected by securities issuers. Merrill Lynch said that the catalyst that could improve the situation remains very weak. Investors have been anticipating the IPO by Vietcombank scheduled for this year’s end, but many IPOs may be delayed if the market remains lackluster as nowadays. Meanwhile, the high inflation rate will put a lot of pressure on the interest rate policy, while causing the overly hot credit growth rate of joint stock banks. Since Merrill Lynch added Vietnam onto the list of investment-worthy countries, the stock market has grown by 212%, far exceeding the average growth rate in the region at 167%. Investors have been advised to use the capital they have to invest in China’s stocks. US-based Merrill Lynch is the world’s leading financial group with the total assets of $1,800bil. In October 2006, Merrill Lynch itself released a very optimistic report about Vietnam’s stock market, calling Vietnam ‘our top buy’ in Asia. The report was thought to create the investment fever in Vietnam’s stock market at the end of 2006 and early 2007. (Source: Viet Nam Net) | 
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