For Vietnam Stocks, a Happy New Year

For Vietnam Stocks, a Happy New Year

Vietnam's stock market has been the unlikely star performer in Asia this year, surging 11%. Foreign investors are rushing in as the government takes measures to kick-start the troubled economy and relaxes rules on the share market.

After a rocky 2012 for the economy, when rising bad debts at the nation's lenders shook the banking system and growth slumped to its lowest rate in more than a decade, at 5.03%, fund managers say they are seeing signs of improvement. Inflation is down sharply, while a rise in foreign-exchange reserves has halted a decline in the local currency.

"We are very encouraged to see that the government is very committed to stabilizing the economy, and that is what we continue to see going into 2013," said Trinh Nguyen, general director and chief investment officer at Manulife Asset Management (Vietnam) in Ho Chi Minh, which has $300 million of assets under management in Vietnam.

Ms. Nguyen said Manulife had increased its exposure to Vietnam in recent weeks.

To help attract overseas funds, the securities regulator said Wednesday it will consider raising the cap on foreign ownership in local companies to more than 49%. It also will widen the daily trading band for share prices to 7% from 5%, beginning Tuesday.

The benchmark Vietnam Index, or VNindex, rose 2.5% Thursday to 460.12.

The index, which climbed 18% last year, is catching up with its Southeast Asian neighbors. The Philippine stock market rallied 33% last year and Thailand's surged 36% as investors have been drawn to the region's growth prospects. So far this year, the benchmark Philippine index is up 3.5% and the Thai market is ahead 1%.

There has been a "buying frenzy" in Vietnam in the last few weeks, said Fiachra MacCana, who is head of research at Ho Chi Minh Securities.

Trading volumes this year are averaging about US$100 million a day, roughly triple the average daily levels for the second half of last year.

Foreign investors have been net buyers of US$42 million of stocks on the country's main Hochiminh Stock Exchange since the beginning of this year. They were net buyers of $300 million of shares in 2012.

Still, Mr. MacCana said stocks may be due for a pullback after the 20% rally in the past two months, though he says any decline would likely be temporary.

The State Securities Commission, the market regulator, is also pushing to reduce the tax on securities trading, and is asking the government to speed up the privatization of state-owned companies to create more stocks in the market.

There are 314 shares listed on the Hochiminh exchange, with a total market capitalization of about $34 billion.

Meanwhile, U.S.-based KKR & Co. this week agreed to invest $200 million in Vietnamese sauce maker Masan Consumer Corp., a unit of listed Masan Group Corp., marking the largest investment to date in Vietnam by a private-equity firm. KKR's deal is in addition to $159 million it invested in Masan Consumer in April 2011. KKR has been looking to back companies across Southeast Asia with exposure to the region's emerging affluent class.

Still, the worry over banks' nonperforming loans presents headwinds for the economy and the market. The central bank said late last year that the ratio of bad debt in the banking system was at 8.82% at the end of September, up from around 6% at the end of 2011. No newer numbers are available.

Bad debts deter banks from boosting lending. Reducing the bad-loan ratio is one of the central bank's most important tasks set by the government for this year.

Investors have taken some comfort from the central bank saying this week that the government will soon launch an asset-management company to help deal with bad debt by using funds from sales of stakes in state-owned companies.

Meanwhile, to spur growth, the Finance Ministry is considering cutting corporate and value-added tax rates and reducing rents on state land.

"Vietnam is indeed starting 2013 with a stronger foundation, but that's just the beginning," said Hong Kong-based Trinh D. Nguyen, an economist at HSBC . "Further reforms are needed and the sooner they come, the better."

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