Vietnam’s woes spell big bucks for frontier investors

Vietnam’s underperforming stock market has thrown the spotlight on investment opportunities in the country, where sectors from banking to retail to insurance are on the radar of private equity firms and fund investors with an appetite for frontier market risk.

The risks to investing are significant, and include this month’s 8.5 percent currency devaluation, as well as sovereign downgrades from Moody’s and Standard & Poor’s in December.

The country’s main stock index.VNI has dropped 10 percent in the past week after the government announced new measures to curb double-digit inflation.

The market is among the worst performers in Asia, limping in with a 4.4 percent rise in the past six months versus a 10.3 percent gain in Thailand’s SET index.SETI and an 8 percent rise in Shanghai’s stock index.SSEC.

“Purely from a valuation point of view, it’s a good time to invest in Vietnam,” said Anand Ramachandran Prasanna, an investment associate at Squadron Capital, an Asia-based private equity fund-of-funds manager.

Chinese stocks in Shanghai are trading at a trailing price to earnings ratio of 17.4, versus 17.1 for Bombay.BSESN. Vietnam trades at 9.9, according to Thomson Reuters data.

“If you have the risk appetite, it’s a high-risk, high-return opportunity,” Prasanna said. He warns that it’s tough to assess long-term private equity returns because of the same economic uncertainties that create the valuation opportunity.

Apart from economic uncertainties, corruption, lack of transparency and bureaucratic red tape top analysts’ list of risks in Vietnam.

But two recent foreign investments reflect the attraction of Vietnam, a developing country with a youthful population of more than 80 million in a region where dealmakers are keen to find investment alternatives to China and India.

Over the past decade, Vietnam has emerged from the hangover of war to play a central role on Asia’s factory floor, producing everything from footwear to computer parts.

The country also offers the chance to invest early in an underdeveloped consumer market with strong growth. The country’s economy grew 6.78 percent in 2010 and exceeded the official growth target.

Vietnam is aiming to clock annual GDP growth of 7.0-7.5 percent in the next five years.

BIG-TICKET DEALS

Bankers expect more action after a series of recent high-profile deals. Last month, Diageo Plc (DGE.L), the world’s biggest spirits maker, took a 23.6 percent stake in Hanoi Liquor Joint Stock Company for $33 million from local private equity firm VinaCapital Vietnam.

US private equity firm Mount Kellett Capital Management made a $100 million investment in private sector conglomerate Masan Group’s MSN.HM unit Masan Resources, marking the largest private equity investment in Vietnam, according to Thomson Reuters data. – Reuters

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