Vietnam Market Tumble Means Cheapest Stocks in Six Months

A man rides a motorcycle past the Ho Chi Minh City Stock Exchange in Ho Chi Minh City, Vietnam. Photographer: Kevin German/Bloomberg

Vietnamese stocks falling into a bear market dragged valuations to a six-month low against Southeast Asian peers as the arrest of bank officials last week fueled concern of instability in the nation’s financial system.

The VN Index (VNINDEX) fell 0.1 percent to 385.78 as of the 2:15 p.m. close in Ho Chi Minh City, the lowest close since Jan. 30. The gauge has fallen 21 percent from its high this year on May 8, more than the 20 percent some investors consider a bear market. The measure traded yesterday at 9.4 times estimated profit, the lowest level since May 25 and a 33 percent discount to the 141- member MSCI South East Asia Index, according to data compiled by Bloomberg.

The Vietnamese gauge slumped 12 percent since Aug. 20 after Nguyen Duc Kien, a founder of Asia Commercial Bank (ACB), was detained for what the central bank called conducting “business illegally.” The lender’s former Chief Executive Officer Ly Xuan Hai was subsequently arrested for alleged economic mismanagement, according to a police statement. Moody’s lowered Asia Commercial Bank’s credit rating to B2 from B1 on Aug. 24 and put the company on review for future downgrades.

The arrests “will provide long-term investors with a buying opportunity,” Marc Faber, publisher of the Gloom, Boom & Doom Report, said by phone yesterday. “The market is now relatively inexpensive.”

Faber, chairman of Hanoi-based Indochina Capital with $480 million under management including about $20 million of Vietnamese equities, plans to purchase stocks in the next two weeks and is considering bank shares as well.

Foreign Purchases
Overseas investors bought a net 17 billion dong ($815,000) of Vietnamese equities on the Ho Chi Minh City bourse yesterday, according to data from the exchange. Foreigners bought a net $16.4 million of stocks last week, the biggest weekly purchases since the period to March 30.

The buying “shows that overseas investors are still interested in Vietnam,” Nguyen Thi Hoang Lan, deputy general director of the Hanoi stock exchange, said by phone yesterday. “They tend to look at the prospects of the market rather than just the recent sentiment changes and still consider Vietnam as a potential market for long-term investment.”

The VN Index’s discount to the MSCI South East Asia Index was the widest since Feb. 21 as of yesterday, according to data compiled by Bloomberg. The Vietnamese gauge was the third- cheapest 15 Asian benchmark stock indexes tracked by Bloomberg.

Asia Commercial Bank sank 5.9 percent in Hanoi trading, taking its slump since Aug. 20 to 27 percent. Moody’s lowered the lender credit rating following the “negative developments at the bank,” it said.

Bank Liquidity
“Moody’s is concerned that these developments have resulted in pressure on the bank’s liquidity and that there could be longer-term negative consequences for the bank’s franchise value,” the rating company said.

Fitch Ratings also placed Asia Commercial Bank on review for a possible downgrade, it said on Aug. 24. The lender’s long- and short-term issuer default ratings may be cut if there’s sustained weakening in the bank’s liquidity and reputation.

State Bank of Vietnam Governor Nguyen Van Binh said Aug. 21 the monetary authority stands ready to ensure banks have adequate cash after Kien’s detention. The central bank injected 13 trillion dong into the financial system through open-market operations on Aug. 22, the most over a seven-day period this year. It added 3.5 trillion yesterday.

Prime Minister Nguyen Tan Dung’s government is seeking to shore up a banking system saddled with the highest bad debt in Southeast Asia that credit-rating companies cite as a threat to the economy.

‘Positive News’
Vietnam Joint-Stock Commercial Bank for Industry and Trade, the second-largest lender, lost 2.6 percent, taking its slump since Aug. 20 to 12 percent. Saigon Thuong Tin Commercial Joint- Stock Bank, known as Sacombank, was unchanged at 20,000 dong today. It has declined 12 percent since Aug. 20. The central bank began an inspection of Sacombank in July and will complete the probe this month, Binh told lawmakers last week.

Last week’s arrests are “positive news rather than negative,” Faber said. Authorities are “not going to clean up 100 percent. They can clean up 30 percent, which would already be an improvement,” he said.

Bloomberg