VN Index
1039.67 -1.69 -0.16%
Dragon Capital Sells Rallying Vietnam Stocks, Asia's Priciest
By Darren Boey
April 10 (Bloomberg) -- Dragon Capital, Vietnam's biggest fund manager, is betting government share sales will help slow Asia's second-most-expensive stock market, which has slumped 11 percent since its March 12 peak.
``Increasing supply is a rational and welcome way of cooling the market that would kill two birds with one stone,'' said Bill Stoops, head of research at Ho Chi Minh City-based Dragon, which manages $2 billion in Vietnam. Dragon is selling to raise cash that will go back in stocks once valuations fall, he said.
Surging economic growth has fueled investor interest in Vietnam, which this year, three decades after South Vietnam fell to the Communist north, joined the World Trade Organization.
The Ho Chi Minh City Securities Trading Center's VN Index has jumped 39 percent in 2007, even with the recent decline, after rising 145 percent in 2006. The index is valued at 32.6 times this year's estimated earnings, Dragon says. That's more than China's benchmark CSI 300 Index, which at 32.4 times earnings has the costliest Asian shares tracked by Bloomberg.
The VN Index's 2007 gain is second in Asia only to the CSI 300's 49 percent climb. Still, the Vietnamese measure has fallen 11 percent from its March 12 record high. The Corp. for Financing and Promoting Technology, the country's biggest information technology company, and Pha Lai Thermal Power Joint-Stock Co., a power-station operator, led the decline.
Hotter Than China
Overseas fund managers last month sold more Vietnamese shares than they bought for all but eight days, according to data from the Ho Chi Minh trading center. In January and February, they were net sellers for just four days each month.
Dean Van Drasek of LIM Advisors and Fiachra MacCana of VinaCapital Investment Management Ltd. told delegates at an investor conference in Hanoi last month that prices may fall at least 30 percent in coming months. A week earlier, Marc Faber, who successfully predicted the 1987 stock market crash, said prices may slide as much as 50 percent.
Eighteen of the 107 stocks on the VN Index are priced at more than 50 times earnings, according to Vietcombank Securities Co., a unit of the Bank for Foreign Trade of Vietnam.
``We are worried about valuations,'' Lavin Mok, the head of hedge fund manager Tremont Group Holdings Inc.'s Hong Kong office, said at the Hanoi conference, which was organized by Euromoney Institutional Investor Plc. ``We are hesitating to go into the market right now.'' Tremont Group manages about $8 billion in assets worldwide.
Turning Away Cash
The valuation concern extends into the over-the-counter market, the domain of private-equity investors such as Mekong Capital Ltd.'s Chris Freund. Freund, who arrived in Vietnam in 1994, says that some companies in this market trade at more than a 100 times earnings.
PXP Vietnam Asset Management Ltd.'s Kevin Snowball is one investor who's not taking new money until there are more targets to invest in.
``Our funds will be able to open up when we think the market is sufficiently developed,'' said Snowball, who manages $300 million at Ho Chi Minh City-based PXP. ``Even if someone threw $500 million at us, we wouldn't take it.''
It's a common refrain among Vietnam-based fund managers. John Shrimpton, who founded Dragon Capital with Dominic Scriven in 1994, told delegates at the Hanoi conference that making more stocks tradable would be ``the best policy prescription'' his company would recommend to cool the market.
Growing Fast
The value of the Ho Chi Minh trading center's shares through today has risen to $14.8 billion from about $500 million at the end of 2005. The number of listed companies on the six-year-old market has more than doubled over the past six months to 107. Almost all were initially wholly state-owned. Pha Lai Thermal Power, the VN Index's fourth-biggest company, is still majority- owned by the government.
The State Capital Investment Corp., responsible for overseeing the sale of government holdings, has so far taken control of 450 companies and listed 17, including Vietnam Dairy Products Joint-Stock Co., according to Le Thi Bang Tam, chairwoman of the SCIC.
The number of companies under the SCIC's management will grow to 1,000, with plans to list at least 20 in the stock market, said Tam, a former deputy finance minister. The goal is to eventually keep control of just 100-200 ``strategic'' companies, she said.
`Great Opportunities'
``The rest of the companies shall be divested,'' Tam said. ``There will be great opportunities for investors.''
Shares of Vietnam Dairy, known as Vinamilk, have more than tripled since their debut in January 2006 and are now valued at 41.1 times earnings. The Corp. for Financing and Promoting Technology, known as FPT, started trading in December and is now the VN Index's largest constituent, representing 13 percent of the measure.
More new listings are coming. Industrial & Commercial Bank of Vietnam, the country's fourth-largest state-owned commercial bank, said April 2 that it plans to hold an initial share sale in October. It's one of four state-owned banks that the government plans to sell shares in.
These signs are encouraging for Dragon's Stoops.
``The question is how quickly we get adequate supply through privatization,'' he said. ``There's a wall of money waiting to come in.''
To contact the reporter on this story: Darren Boey in Hong Kong at dboey@bloomberg.net .
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