Vietnam to see fast-and-furious rally: report

THE Vietnam Stock Index (VNIndex) could hit 1,350 points by end-2021, implying a 22 per cent upside from 1,103 at end-2020, said Maybank Kim Eng analyst Hoang Huy in a report on Monday.

This target is based on assumptions that earnings per share will grow 28 per cent year on year (as per Bloomberg consensus) and the index will close at 17.4 times its earnings in 2021.

"Although the target is 10 per cent higher than the five-year average of 16 times, we think it is reasonable because there are similarities between this time and during 2017-2018," he said.

In 2017-2018 for instance, corporate earnings grew 20-30 per cent year on year. Consensus forecasts for 2021 are similar as the economy rebounds from the low base of 2020.

Also in the same period of 2017-2018, South Korean investors injected a lot of new money into the Vietnam market through the VFMVN30 ETF (exchange-traded fund). In 2021, this is being boosted by new local retail investors and foreign inflows via local ETFs like the VN Diamond ETF.

"These two factors together caused a strong rerating of the market in 2017-2018 when the VNIndex was able to climb to more than 1,200 points, equivalent to 22 times its 12-month trailing earnings. A similar rerating is occurring in the market and that record valuation may be seen again in the coming months," said Mr Huy.

But history also shows that a market driven significantly by retail money can be volatile and such a high valuation is unsustainable, he added.

"Like many markets around the world, we observed that the fear of missing out will continue to keep the current upward momentum of the Vietnam market in H1 2021 before calming down in H2 2021 to reflect more closely gradual fundamental developments."

In terms of sectors that are likely to perform in 2021, the brokerage's forecast is for the energy sector to grow 43 per cent year on year because of the resumption of most economic activities; financial sector to grow 22 per cent year on year as lending picks up and provisioning eases; and real estate to grow 25 per cent thanks to low interest rates and as regulatory bottlenecks are resolved.