ARE VIETNAM STOCK MARKET VALUATIONS CHEAP?

In recent blog posts I have discussed topics that touch on the boom-and-bust years of the Vietnam stock market around 2006-2009.

I covered the entire history of the Vietnam stock market, and how it has been one of the star performers so far in 2021.

I made the dangerous remark that the rally now “is different this time” compared to around 2006-2007, because Vietnam stock market valuations this time were not expensive.

Therefore I felt it is time to write a bit more about that statement, and elaborate on the question of are Vietnam stock market valuations cheap?

note although I discussed this topic here in heading into 2022, I provide an updated comment further down in this blog post about where Vietnam stock market valuations sit in 2023.

Before I get stuck into some common stock market valuation metrics to look at, the previous posts I referred to where you can learn about the history of the crash and performance this year are below:

Now let’s explore the question regarding current Vietnam stock market valuations. What are some common stock market valuation measures used generally for many global stock markets?

COMMON MEASURES OF STOCK MARKET VALUATIONS

Price to book
PE Ratio
Forward PE Ratio
CAPE Ratio
Relative value vs regional markets
Market capitalisation to GDP
Dividend Yield
Stock values relative to bond yields

VIETNAM STOCK MARKET VALUATION MEASURES

Vietnam Price to book – Vietnam shows 2.75 according to Bloomberg. Whilst I wouldn’t say is necessarily cheap this is not at a level that would be considered as stretched.

Vietnam PE Ratio – The trailing P/E of the Vietnam stock market might be a tad stale as I think quoted stats are based off 2020 earnings figures, but within the last few months I have seen it no more than 17 times earnings. Considering 2020 is quite affected by covid-19 I see that as perfectly reasonable.

Vietnam Forward PE Ratio – The forward P/E will try and estimate earnings into the future to arrive at a ratio. Maye you should take this with a grain of salt as they are estimates, but even still the P/E on a forward basis for the market I also have seen estimated at less than 18 times according to Bloomberg. That is whether it is off 2021 or 2022 estimates. Remember even though towards the back half of 2022 we would hope the Vietnam economy gains further momentum as it recovers from the effects of covid-19, earnings in 2022 might still understate the potential.

In that context the Vietnam market still looks reasonably priced, as we can expect the “E” in the equation to take off with momentum at some stage over the next year or so.

Vietnam CAPE Ratio – I think this measure, applying a multiple to a very long-term earnings data set like 10 years, can be quite useful in trying to assess the probabilities of future 10 year stock market returns. However in regard to the Vietnam stock market I don’t think I have seen the data quoted. There has probably been too much development and change with the index constituents since 10 years ago to draw too many meaningful conclusions.

Vietnam Relative value vs regional markets – I don’t think there is much debate that on PE measures alone the Vietnam market is technically cheaper than markets such as Thailand, Philippines, Indonesia, India for example. Maybe the question though does that mean Vietnam is necessarily cheap or are those markets I just mentioned expensive?

Vietnam Market capitalisation to GDP – This graph that I shall show further down below from CEIC Data note that it is probably a year at least old, but I thought was a good visual for context of this stock market measure in the ASEAN region.

Vietnam’s market cap was extremely small as a percentage of GDP from 2000 up until the last few years where it has shot up to be more than 50%. It is probably not the best measure though since Vietnam is at a stage of its stock market journey where it takes a while for many large businesses to go through the fully privatised stage and list on the stock exchange. Remember the HCMC stock exchange only began around 20 years ago.

Still it doesn’t seem like a measure that causes us concern of an overheated market, especially in the context of ASEAN.

BUFFETT INDICATOR BY COUNTRY HEADING INTO 2022

I thought I would throw it in for discussion though as many think of this as the “Buffett Indicator”. I remember in the old days many would say above 100% might be expensive. Nowadays with the US stock market it is probably twice that and then some, so US index investors like to keep quiet about it!

vietnam stock market capitalization to gdp chart

Source: info.ceicdata.com

BUFFETT INDICATOR IS IT VALID IN 2022?

I am still a bit reluctant to embrace it as a measure though as with an increasing number of large companies that can become dominate with their global reach I am not sure it is such a good measure.

Vietnam Dividend Yield – I have this measure here as most investors are familiar with it and used to keeping it mind when examining developed markets. For what it is worth, the Vietnam MSCI Index (21 constituents in large/mid cap area), has a dividend yield of circa 1% at end of October. Not sure it is all that relevant though as Vietnam does not have the extent of mature dividend companies in this stage of its development compared with most other countries.

Vietnam Stock values relative to bond yields – Like most of the world, the Vietnam bond market nowadays yields substantially less than it did 5 to 10 years ago. The TINA argument (there is no alternative!), is alive and well in Vietnam stocks also. It is hard using this comparison metric to paint much of a bearish case on Vietnam stocks.

I plan to go into more of the specifics of the Vietnam bond market in some of my upcoming articles.

CONCLUSION OF ARE VIETNAM STOCK MARKET VALUATIONS CHEAP?

Just to be clear though, I do stress that I would agree with an assumption that with these sort of measures we should expect the Vietnam stock market to be given some sort of a discount to developed markets. That is a rule of thumb as investors always have a preference to markets with more prolonged histories, and strong records of rules of corporate laws, corporate governance etc etc. As I touched on above though, Vietnam still comes out pretty reasonable when comparing with various emerging stock markets in nearby countries.

The other side of the coin though is Vietnam is likely to have tailwinds such as with stronger economic growth prospects and favourable demographics.

It all can be quite subjective, but my overall point with this post is that despite strong stock market returns in the last year or two in Vietnam, I don’t think traditional valuation metrics imply there is “irrational exuberance” by any means going on here.

VIETNAM STOCK MARKET VALUATIONS 2023

Whilst the Vietnam stock market had a terrible 2022, falling almost 35% if measured by the benchmark in USD terms, it has resulted in seriously cheap valuations. On a trailing P/E ratio basis for example, the VN-Index finished the year trading at circa 10 times earnings. The forward P/E at the time of updating this blog post at the end of 2022 is circa 8 times 2023 estimated earnings.

Now whether you compare that to the rest of the globe, or to other stock markets in South East Asia, those multiples appear low.

VIETNAM STOCK MARKET OUTLOOK 2023

In the context of such compelling valuations, and generally speaking still a healthy trend in EPS forecasts, it wouldn’t surprise me to see the Vietnam stock market bounce back strongly in 2023 in chalk up double digit % gains.

In terms of valuations in the region as I just hinted above, the below chart illustrates well how Vietnam stands out. Figures were where the markets stood as at December 2022.

Source: Bloomberg via Asia Frontier Capital

Is Vietnam a good investment?

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ARE VIETNAM STOCK MARKET VALUATIONS CHEAP?

VIETNAM STOCK MARKET HISTORy

VIETNAM STOCK MARKET CRASH OF 2008

VIETNAM STOCK MARKET RETURNS 2021