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VAM: Vietnam Market Analysis May/June 2010

Market Update – All eyes were on Europe this month as sovereign debt fears threatened to develop into a full blown crisis. This anxiety was reflected in a 13% correction of the VN-Index throughout the first three weeks of May. However sentiment did improve towards the end of the month as China quashed rumors that its appetite for European Debt was wavering, prompting a swift recovery in global indices, including Vietnam.

Vietnams May macro indicators continued to improve. The monthly trade deficit was narrowed to US$750 million, the lowest since March 2009. So far this year Vietnam has run a trade deficit equal to 21.8% of export turnover, slightly above the government target of 20%. We continue to expect a healthy surplus in the capital account that will more than compensate for the trade deficit. Inflation continued to take a breather during May and only registered a monthly increase of 0.27% although it should be noted that this time of year is usually inflations low season. With year-to-date inflation standing at 4.55%, the governments recently reduced target of 8% seems achievable.
VN Index closed at 507.4, down 6.44% month on month.

Our View – We think the market will remain volatile until investors regain confidence in the global markets. Apart from that, we think the State Bank of Vietnams monetary policy will play the prominent role in directing the longer-term domestic market recovery. The current market could present good buying opportunities for the value investor seeking good stocks at a discount. Generally speaking, we still maintain our interest in real estate, construction materials, pharmaceuticals, and food and beverage. For longer horizon, we do like the banking sector, but we think with the Governments requirement for capital contribution (VND 3,000 bn) and the recent hike in CAR requirement from 8% to 9%, an industry consolidation is due in the near- to mid-term, and until that happens, it is hard for the banks shares to jump up significantly.

We are also hearing that a large-cap company in the construction materials sector (number 1 ceramic tiles maker in Vietnam) is going to be listed in 3Q2010 following its private placement. Perhaps this event will bring fresh impetus to the market, which has been significantly lacking since deepening global concerns over the sovereign debt risks in Europe and political tensions on the Korean peninsula.
Read full report and statistic of VAM Monthly Newsletter – May ’10.
Source: VAM, 16.06.2010
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