Valuations of Vietnamese stocks could soar in 2021

By Minh Son January 1, 2021 | 07:45 pm PT

Two investors look at stock prices on a screen at a brokerage in Ho Chi Minh City. Photo by VnExpress/Huu Khoa.

Listed companies are expected to recover significantly in 2021, and this, along with abundant cash flows into the securities market, is expected to push valuations to record levels.

The average price-earnings ratio (P/E) for the VN-Index could rise even further than the highest levels achieved in the last three years, top brokerage SSI Securities Corporation said in its latest outlook.

The P/E index reflects how much investors are willing to pay today for future growth expectations.

Profits of listed companies are forecast to rise by 23 percent after falling 17 percent in 2020.

Liquidity in the form of investment by retail investors, especially those entering the market for the first time, is expected to push valuations up.

The VN-Index’s median P/E in 2018-20 was 16.4 while the highest ever recorded was 21.6 on March 22, 2018. SSI forecast this level to be surpassed in the best-case scenario.

"We acknowledge that 2020-21 may be different, especially given the ample liquidity and the growing role of individual investors, especially F0 investors," the analyst team said.

The P/E as of December 28 this year was 16.03, and though this was higher than pre-Covid-19 levels, it was lower than in neighboring markets.

SSI said in the baseline scenario, the P/E would reach around 18, corresponding to its forecast that the VN-Index will gain 12.3 percent in 2021.

Banking and real estate are the two largest industries in the VN-Index, accounting for 27 percent and 26 percent of its total market cap.

Both are set to benefit from post-pandemic interest rate cuts, improving banks net interest margins, while housing prices increase amid limited supply in Ho Chi Minh City, Vietnam’s largest market.

Many analysts have said in the last two years that Vietnam’s stock market is undervalued compared to its peers.

Its P/E ratio on August 31 was 14.7 against 27.3 for the U.S.’s S&P500 Index and 21.3 for Thailand’s SET Index, fund management company Asia Frontier Capital said in its third quarter report.

"Vietnam looks markedly undervalued relative to other markets, in terms of both relative and absolute valuations, especially when taking into consideration its stable currency, expected positive 2020 GDP growth numbers and continued inflow of foreign direct investment."