FT article



Vietnam stocks ?30% overvalued?

By Bill Hayton in Hanoi

Published: January 23 2007 16:13 | Last updated: January 23 2007 16:13

Vietnam?s main stock market is overvalued by about 30 per cent because of a wall of hot money flowing in from abroad, leading foreign fund managers warned in Hanoi on Tuesday.

The Vietnam Index of the Ho Chi Minh City Securities Trading Centre has surged 38 per cent this year, after rising 144 per cent in 2006.

However, Fiachra Mac Cana, head of research at Vina Capital investment fund, told a capital markets conference that most of the rise in the market was due to ?intense speculation on the part of a new kind of foreign investor?.

Mr Mac Cana said these ?hot money? investors were buying largely through large overseas investment houses which have started to issue participatory notes in the Vietnamese market.

He said that price/equity ratios of 25-30 in Vietnam compared with a regional average of 18-20. ?It is not sustainable, this market is overvalued,? he said.

Peter Ryder, chief executive of Indochina Capital, and Alex Hambly, chief executive of Prudential Vietnam Fund Management expressed similar concerns.

Mr Ryder said there was a risk that further market rises could trigger government intervention. ?The worst thing the government could do right now is to step in. I don?t think what?s happening here is unusual for an emerging market. The government should allow the market to correct itself, as all markets which aren?t over-hindered with rules and regulations will,? he said.

However, officials said the government was prepared to delay further liberalisation of Vietnam?s securities rules until the market cooled down. Vu Bang, head of the State Securities Commission, ruled out raising the 49 per cent limit on foreign ownership of listed stocks in the short term. ?It does not mean that the government will not open the door, but it should not be done at such a hot time,? he said.

Figures on the amount of foreign money flowing into the Vietnam market are hard to calculate because most purchases in the past three months have been via participatory notes. A participatory note is an arrangement whereby an institution with stock trading rights in a particular country buys a basket of shares there and holds them on behalf of clients located elsewhere.

Foreign investors are expected to continue to pour money into Vietnam?s markets because of the prospect of further privatisations in state-controlled industries