HSBC pan-asia equity strategy

HSBC's view on the VN stock market.

Time of review VNI=509 || HSBC Forecast by 2009, VNI = 600 || Currently VNI = 548. Gov' will continue to make a pig's ear of the market.. i'll say 800 by end of year!

Foreign flows. Risk aversion means that an unprecedented amount of capital has been withdrawn from Asia over the past few months (Chart 9). This year so far, foreign investors have sold USD20bn of Japanese stocks, USD14bn of Korean ones and USD3bn in India. Only Taiwan and Vietnam have escaped the sell-off.

Readers will doubtless disagree with our judgements, but this scorecard (VN ranked 12/13 on Monetary policy, Earnings, visibility, Politics, Sensitivity to US/global growth, Valuation Structural worries, Long-term story) enables us to make a rough call on which markets now look attractive (Thailand, Singapore, and China, for instance), and which are better avoided (Japan, Vietnam, the Philippines, and Australia). We loosely based our country weight recommendations this quarter on these results.

Vietnam (slightly raise off-benchmark weight) The Vietnamese authorities have made a pig’s ear of their stock market recently. A combination of over-greedy pricing for privatisation IPOs, behind-the curve monetary policy, confusing currency policy, and ill-considered measures to prop up the market have caused the Vietnam index to crash 45% in Q1. The economy is starting to show some strains too.

Tight monetary policy (to tackle inflation, which has risen to 19%) is likely to slow growth to, in
our economists’ view, 7.8% in Q1 2008 and below 8% in 2009. Another worry is the trade
deficit, which hit 17% of GDP in 2007. But we believe value is starting to emerge in the
stock market. The 12-month forward PE (based on our assumption of 20% EPS growth this year, following 49% in 2007) has fallen to 12x (compared to a peak of 33x in March 2007). The State Capital Investment Corp will start to buy blue-chip stocks (in our view, a useful short-term palliative, but a worrying long-term development). We expect significant further volatility in the short-term but for investors willing to hold for a year or more, this market is
starting to look interesting again. The fundamental story of Vietnam as the next major FDI destination is not over (try asking companies in Taiwan, Japan, and Thailand where they intend to invest next). Good-quality companies in consumer or infrastructure-related businesses that have stuck to their knitting and not diversified into banking or real estate ought to be attractive long-term buys at these levels.