Macro

Pan-Asian Equity Strategy

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Global Research

 Vietnam is likely to achieve economic

Vietnamese Equities growth similar to China’s and India’s in
Time to go in the next five years

 So far, few institutional investors have

looked at its stock market, judging it too
small and illiquid

 But that’s changing. Tradable stocks

now have market cap of USD9bn, and
the market is open to foreigners. It’s
time for investors to dip their toes

Increasingly investible
Our economists today published a report arguing that
Vietnam can achieve its target of 7.5%-8% annual real GDP
growth over the next five years.

International institutional investors, hearing that, will want a

piece of the action. But most have been deterred up to now
by what they perceive to be the small size and lack of
liquidity of the stock market.

In fact, the Vietnamese market is becoming increasingly

accessible to international investors. Foreigners can own up
to 49% of stocks; trading, FX and tax rules are favourable.
Market cap (if the OTC market is included) has risen to
USD9bn, and turnover to perhaps USD20m a day. With five
or six IPOs, each for USD1bn plus, likely in the next 12
1 September 2006 months, the market will continue to grow. PE, based on
Garry Evans* historic earnings, of 16x is not particularly high.
The Hongkong and Shanghai Banking Corporation Limited (HK) Vietnam’s entry into the WTO in October and the APEC
Pan-Asian Equity Strategist
+852 2996 6916 garryevans@hsbc.com.hk meeting being hosted in Hanoi in November will bring
Vietnam into the headlines, and could be the catalysts for
fund managers to look at the market for the first time.

The stock market remains too small for large institutions to

gain meaningful exposure, but we think many will want to
dip their toes into the water by opening a trading account
*Employed by non-US affiliate of HSBC Securities
and buying a few stocks. Now is the time to move.
(USA) Inc, and is not registered/qualified pursuant
to NYSE and/or NASD regulations. This report does not aim to identify which stocks investors
Disclaimer & Disclosures. should buy. Rather, it intends to be useful guide to how to
This report must be read with the get exposure to this promising market.
disclosures and the analyst certifications
in the Disclosure appendix, and with the
Disclaimer, that form part of it.
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Vietnam now
 With Vietnam’s economy set to grow 7.5-8% a year, investors will
want to have exposure to this market
 The stock market is small (total market cap USD9bn) but, with
forthcoming privatisations, it will grow rapidly
 Vietnam’s WTO entry in October could be a catalyst. Institutional
investors need to get familiar with this market now

A compelling economic story with USD9bn expected to come from foreign

Our economists today published a comprehensive
report entitled Vietnam: Going for the next level,
surveying the Vietnamese economy. In summary,
their arguments are that:
 The odds are high that Vietnam can achieve
its target of 7.5-8% real GDP growth over the
next five years.
 The factors that can make this possible
include: favourable demographics; rising, and
sustainable, fixed asset investment; and
increases in productivity caused partly by a
continuing shift out of agriculture into
industry and services.
 Management of monetary and fiscal policy
has been cautious and supportive of stable
growth with acceptable inflation, fiscal and
current account balances, and debt ratios.
 Capital demands to achieve this growth will
be large, with investment/GDP expected to
rise from 33% to 41-42% by 2010. The
government’s plan projects that USD49.5-
51.5bn of this capital will come from abroad,
portfolio investment.
Most investors, hearing this story, will want
exposure to it. Vietnam has a population of 82
million, growth rates likely to be similar to those
in India and China over the next few years,
healthy economic fundamentals, and is playing a
growing role in the global economy.
But, until recently, few international institutional
investors had as much as glanced at the
Vietnamese market. That is not surprising since,
at the end of 2005, the Ho Chi Minh City
Securities Trading Center (HCMCSTC, the main
stock market, which opened in 2000) had only 32
listed stocks and a market capitalisation of
USD460m.
Much has changed this year. With two large new
listings of privatised companies (Vinamilk and
Sacombank), the market cap of the HCMCSTC
has risen to USD2.9bn (as of 25 August). Average
daily turnover has increased from USD680,000 in
2005 to USD5.1m in the past three months. Add
the Hanoi market and OTC stocks, and market cap
may be as big as USD9bn. The Vietnam Stock
Index has risen by 55.3% y-t-d – and that despite

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correcting 38% between May and July. A couple
of international brokers published their first
reports on the market and the Vietnamese
economy.
But still the market has not come on to most
global fund managers’ radar screens. Total foreign
investment in listed stocks is only USD840m (and
perhaps the same again in unlisted, OTC-traded
stocks, for which little data is available). Most of
this comes from listed Vietnam country funds,
which have a total of USD1,376m in net assets.
Given the small size of the market and limited
liquidity, few major institutions have yet looked at
this market.
Time to look at Vietnamese equities
We think they will have to start soon. A number
of catalysts will emerge over the next few months,
which will bring Vietnamese stocks into the
headlines.
 After 10 years of negotiations, Vietnam is set
to gain accession to the WTO at its meeting
on October 10-11. It is unclear whether the
US Congress will pass “unconditional most
favoured nation status” for Vietnam ahead of
the mid-term elections, which would mean
the US will have to opt out of WTO
agreements with Vietnam. While this is a
drawback, it would not derail Vietnam’s
accession to the body.
 The annual Asia-Pacific Economic
Cooperation (APEC) meeting will take place
in Vietnam for the first time on November 12-
19. President George Bush is likely to visit
Vietnam for the meeting – only the second
time a US president has visited the country
(following President Clinton’s 2000 visit).
 A number of large privatised companies are
expected to list over the coming year. These
include at least two banks, an insurance
company, the electricity utility and two or
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more mobile phone companies, each of which
could be capitalised at USD1bn or more. This
would increase HCMCSTC market cap to
USD9-10bn and for the first time raise the
possibility of Vietnam being included in the
MSCI and FTSE indices.
 A new Securities Law will come into force in
January 2007. Among other changes, this will
allow the clumsily named Ho Chi Minh City
Securities Trading Center to call itself the
“Vietnam Stock Exchange” for the first time.
 The limit on foreign ownership of stocks
(currently 49%, except for banks and unlisted
companies, for which it is 30%) could be
raised to 100% as early as the end of the year
– although the government may retain limits
for sensitive sectors such as finance,
resources and telecoms.
Even if the Vietnamese market is still too small
for most institutional investors to be able to gain
meaningful exposure, we believe that many will
want to at least become familiar with its dynamics
and to start to dip their toes into the water by
opening a trading account and buying a few
stocks.
Over time, Vietnam’s market should grow to
reach a percentage of GDP similar to that in other
Asian countries. As shown in Table 1, market
cap/GDP for Vietnam is currently only 5%,
compared to an average of 71% for the
Philippines, Thailand and Indonesia. If Vietnam’s
market were a similar proportion of GDP it would
be worth USD37bn. In five years’ time, if it were
to grow at 8% a year, it would reach USD55bn.
That would still be smaller than Indonesia’s
current market cap of USD102bn but Vietnam’s
growth rates would probably make it an
interesting (and investible) market for
international investors.
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1. Market cap/GDP for Asian markets (end July 2006)
Country Market cap/GDP
Hong Kong
Singapore
Taiwan
Malaysia
Australia
Japan
Philippines
Korea
India
Thailand
Indonesia
China
Vietnam
Sources: HSBC, Bloomberg
The aim of this report is not to identify which
Vietnamese stocks investors should buy. The
more difficult question is how to buy into the
Vietnam story. Not only is the stock market small,
but three out of the 48 listed stocks (including
Sacombank, the second largest by market cap) hit
their foreign holding limits in August. This report,
therefore, focuses on how to get exposure to the
market. We take the positive economic story as a
given. (We would advise readers who are not yet
convinced to look at the report from our
economics team, published concurrently with this
report.)
It is also difficult to get reliable information on
how the Vietnamese equity market works. For
example, the turnover of unlisted stocks is several
times bigger than that of the listed names, and
many of the most interesting investments are not
listed (although they can easily be traded via an
informal OTC market). Data is also hard to find,
even for the listed market – Bloomberg, for
example, provides basic stock prices but virtually
nothing else. Part of this report’s purpose,
therefore, is to explain the details and dynamics of
the market.
above), with no FX controls and no dividend or
capital gains tax (just a transaction tax of 10 bps
711% on gross sale amount). Opening a trading account
234%
152% is a little time-consuming, but not particularly
141% onerous: investors do not need approval, only a
124%
115% trading code. Regulators are open to proposals on
114%
86%
how to improve market mechanisms and have
81% already introduced a number of reforms after
67%
31% investor suggestions. This openness contrasts with
24% most other Asian markets (for example, Korea,
5%
Taiwan or China) which were much more
restrictive on foreign access in their early days –
and, in the case of China, still are.
The last section of this report provides a practical
guide to opening a securities account in Vietnam
and trading and settling stocks. It includes a guide
to finding corporate and market information.
Dynamics of the equity market
There are three markets on which stocks can be
traded in Vietnam.
Ho Chi Minh
The Ho Chi Minh City Securities Trading Center
(HCMCSTC) was founded in 2000, and currently
lists 48 stocks and one investment fund. As shown
in Table 2, which ranks the stocks by market cap,
two stocks, Sacombank and Vietnam Dairy
Product (commonly known as Vinamilk) together
comprise 53% of market cap and 43% of turnover.
The top six or seven stocks are generally
considered to be investible by foreign investors.

But, from a point of view of regulations and

structure, Vietnam is not a difficult market to
invest in. Foreigners have free access to the
market (subject to the ownership limits mentioned

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2. Stocks listed on Ho Chi Minh City Securities Trading Center

Code Name Short name Sector Mkt cap (USD mn) % of total mkt Ave daily trading val (USD)
cap
VNM Vietnam Dairy Product Co Vinamilk Beverages 804.3 27.3% 682,181
STB Sacombank Sacombank Commer Banks Non-US 753.3 25.6% 2,294,568
VSH Vinh Son - Song Hinh Hydropo VSHPC Electric utility 277.1 9.4% 370,972
GMD General Forwarding & Agency Gemadept Transport-Services 153.2 5.2% 244,428
KDC Kinhdo Corporation Kinhdo Confectionery 148.0 5.0% 45,296
REE Refrigeration Electrical Eng REE Appliances 142.5 4.8% 450,145
SAM Cables And Telecom Material Sacom Wire&Cable Products 127.1 4.3% 275,817
CII HCM City Infrastructure Inv CII Special Purpose Entity 63.0 2.1% 168,651
BMP Binh Minh Plastics Joint Sto Bmplasco Plastics 48.5 1.6% 319,908
VFMVF1 Vietnam Sec Investment Fund VF1 Closed-end Funds 46.1 1.6% 342,826
SJS Songda Urban & Industrial Zo Sudico Property 41.2 1.4% 358,929
NKD North Kinhdo Food Joint Stoc North.Kinhdo Food 38.3 1.3% 32,305
AGF An Giang Fisheries Agifish Fisheries 27.1 0.9% 58,076
SSC Southern Seed Corporation SSC Agricultural Operations 22.3 0.8% 26,659
BT6 620 Chau Thoi Concrete Corp 620CCC Bldg Prod-Cement/Aggreg 16.9 0.6% 41,109
SAV Savimex Corporation Savimex Home Furnishings 16.0 0.5% 45,078
DHA Hoa An Joint Stock Company Hoaan Mining Services 15.0 0.5% 99,823
TYA Taya Vietnam Electric Wire Taya Vietnam Materials 13.8 0.5% 190,171
BBC Bien Ho Confectionery Corp Bibica Food-Confectionery 13.3 0.5% 93,952
TMS Transforwarding Warehousing Transimex Saigon Transport-Services 12.8 0.4% 26,271
GIL Binh Thanh Import Export Pro Gilimex Diversified 12.2 0.4% 45,489
MHC Hanoi Maritime Holding Compa Marina Hanoi Food 12.1 0.4% 55,593
VFC Vinafco Joint Stock Corporat Vinafco Diversified 10.4 0.4% 60,177
COM Comeco Joint Stock Company Comeco Oil & gas 9.7 0.3% 41,536
HAP Hai Phong Paper Company Hapaco Paper&Related Products 8.2 0.3% 78,299
HTV Ha Tien Transport Joint Sto Hatien Transco Transportation 8.0 0.3% 31,546
TRI Saigon Beverages Joint Stock Tribeco Berverages 7.5 0.3% 25,009
RHC Ry Ninh Ii Hydroelectric Joi RNII Electric utility 7.0 0.2% 5,952
BBT Bach Tuyet Cotton Corp Cobovina Consumer Products-Misc 6.2 0.2% 53,536
VTC VTC Telecommunications Co VTC Telecoms 6.2 0.2% 19,017
CAN Halong Canned Food Stock Canfoco Food-Canned 5.7 0.2% 12,760
BPC Bim Son Packing Company BPC Containers-Paper/Plastic 5.7 0.2% 15,634
PMS Petroleum Mechanical Stock PMSC Oil & gas 5.3 0.2% 23,396
TTC Thanh Thanh Ceramic Joint St TTC Materials 5.3 0.2% 29,854
TS4 Seafood Joint Stock Co No.4 Seapriexco No.4 Food 5.2 0.2% 5,461
HAS Hanoi P&T Construction Hacisco Construction 4.8 0.2% 22,385
FPC Full Power Joint Stock Co Full Power Electric utility 4.8 0.2% 22,247
PNC Phuong Nam Cultural Joint St PNC Leisure 4.8 0.2% 6,530
KHA Khanh Hoi Import Export Co Khahomex Home Furnishings 4.7 0.2% 53,121
SFC Saigon Fuel Company SFC Oil & gas 4.2 0.1% 19,216
LAF Long An Food Processing Lafooco Food 4.2 0.1% 32,182
SGH Saigon Hotel Corporation Saigon Hotel Leisure 3.8 0.1% 9,900
TNA Thien Nam Trading Import Exp Tenimex Trade 3.5 0.1% 1,820
NHC Nhi Hiep Brick-Tile Joint St Brico Materials 3.2 0.1% 3,942
CYC Chang Yih Ceramic Joint Stoc Chang Yih Ceramic Materials 3.0 0.1% 64,366
SHC Saigon Maritime Joint Stock SHC Food 2.8 0.1% 58,076
UNI Vien Lien Joint Stock Compan Unico Diversified 1.8 0.1% 16,949
DPC Da Nang Plastic Joint Stock Danaplast Rubber/Plastic Products 1.8 0.1% 9,779
BTC Binh Trieu Construction BTC Machinery-Constr&Mining 1.2 0.0% 4,206
Source: HCMCSTC

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Turnover on the market has picked up 4. Stocks listed in Hanoi

significantly this year (see Chart 3), averaging Code Company Mkt cap (USD
mn)
USD5.1m a day over the past three months, and
PPC Pha Lai Thermal Power 554.5
reaching an average of as much as USD10m in VNR Vietnam National Reinsurance Corp 70.7
April. KHP Khanh Hoa Power 16.4
DXP Doan Xa Port 5.9
TKU Tung Kuang Industrial 5.3
3. Daily turnover on the Ho Chi Minh City Securities Trading
Center BBS But Son Cement Packing 3.6
VTL Thanglong 2.6
GHA Haiau Paper 2.2
20
HSC Hacinco 1.4
Daily traded v alue (USD mn)
ILC International Labour & Services 1.4
15 CID Construction & Infrastructure Development 0.5
Source: Hanoi Securities Trading Center
10

5 The authorities are re-considering what role the

0 Hanoi Center should play: it may be turned into a
market for bonds and/or small-cap stocks.
Oct-05
Jan-05

Apr-05

Jul-05

Jan-06

Apr-06

Jul-06

Over the counter market

Source: Ho Chi Minh City Securities Trading Center
Hanoi
The Hanoi Securities Trading Center is only a
marginal player for equities. Only 11 stocks are
listed (see Table 4) with a total market cap of
USD664m. One stock, Pha Lai Thermal Power
(PPC) comprises 83% of market cap and almost
90% of turnover. Power company Vinh Son
(VSH) in June switched its listing from Hanoi to
Ho Chi Minh, where it is now the third largest
stock by market cap.
Most foreign writers on the Vietnamese market
have missed the fact that the OTC market for
unlisted stocks is far more liquid, and contains
more interesting stocks, than the listed market. By
way of evidence, some of the biggest Vietnam
country funds have 70% or more of their
portfolios in unlisted stocks.
Since 2001, the Vietnamese government has
“equitised” more than 3,000 companies – i.e.
turned them into joint-stock companies (more on
this process below). In theory, shares in any of
these companies can be traded. Most have a free
float of less than 5% so, in practice, are closed.
But brokers and fund managers in Ho Chi Minh
City reckon that some 200 are traded openly.

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It is difficult to know how many of these trade
regularly. Saigon Securities and ACB Securities
post indicative prices on 35 and 16 (overlapping)
stocks, respectively, in the HCMCSTC’s daily
bulletin. But fund managers report that, even for
these names, doing deals can be difficult. Perhaps
another 50-60 stocks can be located if an investor
wants to buy.
Although reliable data is hard to find, it seems
clear that many interesting names are traded OTC.
Table 5 shows the list of stocks for which Saigon
Securities publishes prices. The total
capitalisation of these stocks is USD3.9bn, i.e.
about one-third larger than the HCMCSTC. If the
other regularly traded stocks are added, it is likely
that the capitalisation of the OTC market is about
USD5-6bn. There are nine OTC stocks (mostly
banks) with market cap of USD100m or more,
compared to only seven in Ho Chi Minh.
There is even less data on turnover, but various
brokers and investors we spoke to estimate that
turnover of OTC stocks is between 1.5x and 6x
that of the HCMCSTC, i.e. between USD7.5m
and USD30m. At the top end of that range,
Vietnam’s total turnover would be similar to that
of the Philippines (which had a daily average of
USD38m in January to June 2006).
What can investors buy?
The three markets together have four stocks with

5. Frequently traded OTC stocks

Code Company Sector Mkt cap
(USD mn)
ACB Asia Commercial Bank Banks & insurance 937.7
TCB Vietnam Technological And Commercial Joint Stock Bank Banks & insurance 466.5
EXB Vietnam Import-export Commercial Joint-stock bank (Eximbank) Banks & insurance 375.4
EAB Eastern Asia Commercial Bank Banks & insurance 350.4
PVDRILLING CTCP Khoan & D ch v Khoan D u Khí Petroleum Industry 214.5
PNB Southern Commercial Joint Stock Bank Banks & insurance 197.7
VPB Vietnam Commercial Joint Stock Bank For Private Enterprises Banks & insurance 182.7
MB Military Commercial Joint-stock Bank Banks & insurance 144.7
BMI Baominh Insurance Corporation Banks & insurance 135.5
SCB Saigon Commercial Joint Stock Bank Banks & insurance 94.9
VITACO Vietnam Tanker JSC Transportation 84.9
TDH Thu Duc Housing Development JSC Real Estate & Construction Material 65.3
AGPP An Giang Plant Protection JSC Others 45.9
VAS Vien Dong Assurance Company Banks & insurance 45.0
PGC CTCP PETROLIMEX GAS Petroleum Industry 42.2
TAOIL Tuong An Vegetable Oil JSC Food/Beverages 41.5
TPP Tien phong Plastics JSC Plastic Industry 40.9
HORUCO Hoa Binh Rubber JSC Rubber Industry 39.0
HGP Hau Giang Pharmaceutical Joint-Stock Company Pharmaceutical 35.0
WSB Western Sai Gon Beverages JSC Food/Beverages 34.4
IMEXPHARM Imexpharm Pharmaceutical joint - stock Company Pharmaceutical 33.3
DOMESCO Domesco Medical Import Export JSC Pharmaceutical 30.2
VOSA Vosa Group of Companies Transportation 29.1
VINACAFE BienHoa Coffee Company (Vinacafe BienHoa) Food/Beverages 26.0
TAPACK Tan Tien Plastics and Package JSC Plastic Industry 25.9
TNR Thong Nhat Rubber Company Rubber Industry 24.0
RDL Rangdong Light source and Vacuum flask Joint stock Company Electronic 22.7
PINACO Dry Cell and Storage Battery JSC Electronic 20.8
TIE Telecommunication and Electronics Industry JSC Electronic 20.6
FIMEX Sao Ta Foods JSC Sea Products 20.0
CDBECO Chuong Duong Beverages JSC Food/Beverages 15.4
CASUMINA Southern Rubber Industry Joint Stock Company Rubber Industry 15.2
AQUATEX Ben Tre Aquaproduct Import and Export JSC Sea Products 8.4
BTH Pharmaceutical JSC of Feb 3rd Pharmaceutical 7.9
VITALY VITALY JSC Real Estate & Construction Material 4.3
SFN Saigon Fishing Net Joint Stock Company Others 2.9
Source: Saigon Securities

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6. Vietnam’s blue-chips
Code Company Where traded Sector Mkt cap (USD Foreign Foreign limit
mn) ownership
ACB Asia Commercial Bank Unlisted Financials 937.7 30%? 30%
VNM Vinamilk Ho Chi Minh Beverages 804.3 34.5% 49%
STB Sacombank Ho Chi Minh Financials 753.3 30.0% 30%
PPC Pha Lai Thermal Power Hanoi Power 554.5 n/a 49%
TCB Vietnam Technological And Commercial Bank Unlisted Financials 466.5 n/a 30%
EXB Vietnam Import-export Commercial Joint-stock Unlisted Financials 375.4 n/a 30%
bank (Eximbank)
EAB Eastern Asia Commercial Bank Unlisted Financials 350.4 n/a 30%
VSH Vinh Son - Song Hinh Hydropo Ho Chi Minh Power 277.1 10.0% 49%
PV Drilling CTCP Khoan & D ch v Khoan D u Khí Unlisted Oil & gas 214.5 n/a 30%
VPB Vietnam Commercial Joint Stock Bank For Unlisted Financials 182.7 n/a 30%
Private Enterprises
GMD Gemadept Ho Chi Minh Logistics 153.2 22.9% 49%
KDC Kinh Do Ho Chi Minh Confectionary 148.0 26.6% 49%
REE REE Ho Chi Minh Air conditioning 142.5 49.0% 49%
TDH Thu Duc Housing Development JSC Unlisted Financials 65.3 n/a 30%
BMP Binh Minh Plastics Joint Sto Ho Chi Minh Plastics 48.5 10.2% 49%
Source: HSBC, HCMCSTC, Saigon Securities, Hanoi Securities Trading Cneter

a market cap of more than USD500m, and a 7. Foreign share of trading by month

further five with market caps between USD200m 60%

and USD500m. We show these in Table 6,
50%
together with a handle of other names that large
40%
investors consider representative stocks. These
are, if you like, Vietnam’s “blue-chips”. The most 30%

interesting sectors in this market in the long run 20%

are likely to be: banks, food and beverages, 10%
telecoms, oil and gas, mineral resources, utilities 0%
and textiles/footwear.
Oct-05

Dec-05
Sep-05

Jan-06
Feb-06
Mar-06
Apr-06

Jun-06
Jul-06
Aug-06
Nov-05

May-06

One increasing problem is that a number of the

most interesting stocks have recently hit their
foreign limits, most notably Sacombank, REE and
(it is rumoured, although no public data is
available) the OTC-traded Asia Commercial
Bank.
Foreigners currently own about 26% of the stocks
on the HCMCSTC; their share of trading has also
averaged about 27% so far this year (see Chart 7).
(No data is available on the foreign ownership
level of OTC stocks. The companies themselves
are responsible for ensuring that they do not
register shareholders that would take foreign
ownership over 30%.)
Source: Ho Chi Minh City Securities Trading Center
Debate has started about how to treat stocks that
have hit their foreign limits. Some international
investment banks offer Vietnamese stocks to their
clients via participatory notes, and there are
suggestions that these might trade at a premium
offshore. Some investors have suggested the
authorities create a foreign board, as in Thailand,
with a portion of securities specifically reserved
for foreign investors. Since the HCMCSTC uses
the Stock Exchange of Thailand’s trading system,
this should be fairly straightforward to set up.

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For the moment, though, there are probably still 9. Valuation metrics of largest Ho Chi Minh stocks
12 of the 15 stocks in our blue-chip list that are Code Short name M cap PE P/B DY Payout
(USD mn) ratio
open to foreigners to buy.
VSH VSHPC 277.1 50.4 3.5 0.0% 0.0%
What about valuations? CII CII 63.0 35.4 n/a 3.6%127.5%
REE REE 142.5 33.6 4.5 1.6% 53.8%
Overall valuations for the HCMCSTC are not STB SACOMBANK 753.3 27.9 4.2 2.2% 61.4%
KDC KINHDO 148.0 23.9 7.3 2.0% 47.8%
unreasonable (Table 8). PE is 22.1x 2005 earnings VNM VINAMILK 804.3 21.3 6.0 2.1% 44.7%
SAM SACOM 127.1 19.7 3.1 2.2% 43.4%
and 16.1x the past four quarters’ EPS. That is NKD NORTH.KINHDO 38.3 18.1 3.1 1.2% 21.7%
higher than the average 2005 PE for Asia ex Japan GMD GEMADEPT 153.2 18.0 2.8 1.7% 30.6%
AGF AGIFISH 27.1 14.8 3.0 1.2% 17.8%
of 14.3x, but similar to India’s 21.8x. There are no SSC SSC 22.3 12.2 3.4 3.4% 41.3%
BMP BMPLASCO 48.5 11.6 4.3 2.5% 29.0%
systematic forecasts for earnings but fund SJS SUDICO 41.2 4.0 1.6 1.9% 7.6%
managers in Vietnam believe that net profit Source: Ho Chi Minh City Securities Trading Center

should grow 20-25% this year and next and EPS

10-15% (less than NP because of a probable large Earnings data for the OTC stocks are hard to
amount of new equity issuance). Price/book ratio come by. But VinaCapital recently published a
of 3.8x is also a little high by regional standards report on the banks, with some earnings forecasts
(the next highest, India, is on 3.2x), but this can and valuations (Table 10). On its forecasts, the
partly be justified by Vietnam’s almost 24% ROE. average forward PE for banks is 29x, and the
average PB 6x. That sounds expensive by
8. Key valuation metrics – Ho Chi Minh
comparison with other Asian markets – Chinese
Market cap (USD mn) 2,943
PE (past 4Q) x 16.1 listed banks, for example, have an average PB of
PE 2005 x 22.1
P/B x 3.81
2.6x. But Vietnamese bank ROEs are decent –
DY 2.1% ranging from 13% to 31% – and profits are
Div payout ratio 33.8%
ROE 23.6% growing by 50% a year, so that could probably
Source: HSBC, HCMCTC justify a premium.

10. Valuations of traded Vietnamese banks

Some individual stocks look rather more
2006F PE 2005 PB 2006F ROE
expensive – particularly those that foreigners
Sacombank 38.2 6 13%
might like to buy. Valuations for the 13 stocks on Asia Commercial Bank 36.7 11 25%
HCMCSTC with market cap of USD 20m or more Habubank 32.9 11 18%
Eastern Asia Commercial Bank 31.3 7 19%
are shown in Table 9, ranked in descending PE Saigon Commercial Bank 24.6 5 17%
order. Most of the blue-chip stocks are trading on Eximbank 22.8 6 23%
Techcombank 21.2 9 31%
PEs of 20x or more. Source: VinaCapital

Market set to grow further

The number of tradable stocks is likely to grow
rapidly over the next year or two.

The government has already equitised almost

3,000 companies (Chart 11), with the amount
growing each year: it has done 600 already this
year. It plans to complete this process, including

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the equitisation of all the state-owned banks, by
the end of 2009.
11. Number of equitisations by year
1000
800
600
400
200
0
2001 2002 2003 2004
Source: IMF, with HSBC projection for 2006
Companies with net assets of VND10bn or more
are equitised via an auction on the HCMCSTC
(those below that are sold by brokers). Typically,
the company will sell 30% of its equity to
outsiders via the auction, and allocate 30% to
directors and employees (at 60% of the public sale
price), and 10% to associates and strategic
partners (at 80% of the price). The state usually
retains a stake of about 30% (although it can be as
high as 50%). Once the shares have been
auctioned, they often trade actively on the OTC
market for a few weeks as initial buyers take
profits.
Equitised companies do not automatically list on
one of the trading centres. In other words, the
process of the IPO and listing is separate.
However, in future equitisations of large
companies, particularly the state-owned banks,
companies may equitise and list simultaneously.
Vietcombank, for example, is reportedly planning
to do this in mid-2007. The bank has chartered
capital of USD600m, and so, at a PBR of 2.5 or
3x, this could be close to a USD2bn deal.
Until recently, the privatised companies have been
reluctant to list. Listing would require them to
disclose financials (something they do not need to
10
abc
do when traded only on the OTC market) and
accept a higher degree of outside surveillance.
But this reluctance is fading. Listed companies
receive a 50% tax break for the first two years
after listing. This incentive will expire at the end
12. New listings on the Ho Chi Minh Trading Center
20
15
10
2005 2006
5
0
2000 2001 2002 2003 2004 2005 2006*
Source: Ho Chi Minh City Securities Trading Center (*Jan-Aug annualised)
of 2006, which partly explains why there has been
a big increase in new listings this year (Chart 12).
There are a number of other drivers that suggest
listings should continue to grow over coming
years:
 The new Securities Law, which comes into
force next January, will oblige all joint-stock
companies to dematerialise their shares at the
Vietnam Securities Depository. This will
make it easier for investors to settle trades
after buying the stocks OTC, but it will also
reduce the cost of listing, since shares will
already be in the necessary form.
 The government is putting pressure on the
largest 200 or so unlisted companies in which
it retains a stake to list over the next few
years. It believes that their efficiency will be
improved by having to answer more explicitly
to outside shareholders.
 Some listed companies have this year
successfully issued new shares. Unlisted
companies are beginning to see that the listed
market is a useful source of new capital.
 Macro
Pan-Asian Equity Strategy abc
1 September 2006

This all means that many big companies will 14. Vietnam Stock Index – month-end level

likely be equitised and list over the next three to 600

four years, increasing the market size enormously. 500
A partial list of candidates is shown in Table 13. 400

13. Forthcoming equitisations and listings 300

Company Sector
200

Bank for Foreign Trade of Vietnam Financial services 100

Bao Viet Insurance Financial services 0
Bao Viet Securities Financial services

2001

2002

2003

2004

2005

2006
BIDV Financial services
Binh Thuan Hydro Power Plant Utilities
Da Nhim Hydro Power Plant Utilities Source: CEIC
Dau Tieng Rubber Materials
EVN Utilities
Ha Noi Beverage, Beer & Alcoholic Co Beverages With little information on earnings, the market is
Ha Tien No 1 Cement Co Materials
Ha Tien No 2 Cement Co Materials very much driven by sentiment and momentum.
Habeco Consumer goods As can be seen from recent performance, it does
Imexpharm Pharmaceuticals
Mekong Delta Housing Development Bank Financial services tend to track global equities, with a particularly
Mobilfone Telecoms
Phu My Nitrogenous Fertiliser Plant materials high beta. The lack of liquidity means that, when
PTSC Oil services foreign funds start to sell, the negative impact is
Sabeco Consumer goods
Sai Gon Beverage, Beer & Alcoholic Co Beverages exaggerated. The resultant correction causes local
Thac Mo Hydro Power Plant Utilities
Transport & Chartering Co Transportation
individual investors to panic, exacerbating the
Viet Nam Construction & Im-ex Co Construction fall. This is, of course, typical early-stage
Viet Nam Electronics & Informatics IT
Viet Tien Garment Corp Consumer goods emerging market behaviour.
Vietcombank Financial services
Vietnam Airlines Transportation So what – besides the fundamental story – makes
Vietnam Shipping Transportation
Viettel Telecoms Vietnamese equities attractive? We would point to
Vinafone Telecoms
VMS Mobifone Telecoms
a number of attractions for this market.
Sources: Vietnam Holdings, HSBC
 Openness to foreign investment. The initial
limit on foreign ownership was 30%, but this
Why Vietnam is an opportunity was raised to 49% for listed stocks (except
The Vietnamese market has been very volatile banks) last October, and may be scrapped
since it opened in 2000 – and not least this year. completely late this year or in early 2007
The index (Chart 14) fell, for example, by 72% (although there are suggestions that the
between June 2001 and September 2003 (although government will retain restrictions for
it should be remembered that there were only 20 strategic sectors such as banks, telecoms and
listed stocks then). This year it rose by 106% resources). Foreign investors say they sense
between January and May, then corrected by 38%, no anti-foreign sentiment. On the contrary,
but has rebounded by 24% since August. the Vietnamese authorities and companies
understand they need foreign capital to
finance future growth.

 Low state ownership. The state owns only

26% of listed stocks (less than foreigners’
share). In only four of the 48 stocks does the

11
 Macro
Pan-Asian Equity Strategy abc
1 September 2006

state still own a majority of shares (but even incentivises the management, generally
the largest state stake, in Vinh Son, is only retained from those running the firm when it
60%). In a number of the largest companies, was state-owned, to focus on increasing
state ownership has fallen to 0% (see Table profitability. In many cases, the company has
15, which is limited to companies with market been run so inefficiently in the past that
cap over USD20m). Investors report that, management is able to generate an explosive
even when the state does own a significant increase in profits relatively easily.
stake, it tends to be a silent partner and does
 The lack of dominating shareholder groups.
not seek to control management. The state
With shares in most companies spread evenly
also plans to sell many of its stakes down
between management, strategic partners,
further. This situation is unlike China, where
foreign investors, local retail buyers and the
the state almost invariably retains majority
state, there are few vested interests: everyone
ownership.
is a minority shareholder. Unlike the situation
15. State ownership of larger cap stocks in most Asian countries, there are no powerful
Code Name Mkt cap State families, no state holding companies (as in
(USD mn) ownership
Singapore or Malaysia), and no
VNM Vinamilk 804.3 50.1%
STB Sacombank 753.3 0.0% chaebol/zaibatsu groups (at least not yet).
VSH VSHPC 277.1 60.0%
GMD Gemadept 153.2 18.2%  Balance sheets are greatly understated.
KDC Kinhdo 148.0 0.0%
REE REE 142.5 10.0% Equitisations have to be done with a
SAM Sacom 127.1 49.0% price/NAV of more than 1.0. But investors
CII CII 63.0 0.0%
BMP Bmplasco 48.5 39.0% report that balance-sheets are understated,
VFMVF1 VF1 46.1 0.0%
SJS Sudico 41.2 51.0% with real estate assets in particular being
NKD North.Kinhdo 38.3 0.0% recorded at book. With the rise in land prices
AGF Agifish 27.1 20.0%
SSC SSC 22.3 20.0% in the past few years and the possibility of
Sources: Ho Chi Minh City Securities Trading Center, Saigon Securities developing property holdings, this implies
that many companies have significant under-
 Managements have a significant stake in their realised value.
own businesses. As explained above, in the
equitisation process, employees generally end  Possibility of inclusion in the MSCI and other
up owning 30% of so of the shares. This international indexes. MSCI does not disclose
the criteria it uses in deciding whether to add

16. Other small emerging markets included in MSCI indexes

(USD bn) No of Mkt cap of MSCI stocks Free float adjusted mkt cap of MSCI stocks
Country companies in Country Total Min Max Total Min Max
MSCI index Weight (%)
INDONESIA 24 0.24 76.1 0.6 17.8 31.8 0.2 8.9
ARGENTINA 12 0.10 32.4 0.2 21.8 14.5 0.1 8.7
PHILIPPINES 17 0.09 29.3 0.2 7.0 9.2 0.1 2.1
MOROCCO 11 0.09 29.2 0.3 12.2 5.2 0.1 1.8
HUNGARY 5 0.09 28.1 1.0 11.1 19.8 0.6 7.2
PAKISTAN 15 0.08 26.5 0.2 9.7 4.3 0.1 0.7
PERU 5 0.07 21.6 0.6 13.4 9.5 0.5 4.0
JORDAN 14 0.06 19.1 0.1 11.4 3.9 0.1 1.1
COLOMBIA 6 0.05 17.5 1.6 4.1 7.0 0.6 1.6
Source: MSCI, Datastream

12
 Macro
Pan-Asian Equity Strategy
1 September 2006
a country to its indexes. But Table 16 shows
details of small emerging markets already in
MSCI to give an idea of what the index
compiler considers minimum criteria.
Colombia, for example, has only six stocks in
the MSCI index, with the largest having a
free-float adjusted market cap of only
USD1.6bn. The total adjusted market cap of
Jordan is only USD3.9bn. Pakistan has 15
stocks, but the largest has an adjusted market
cap of just USD0.7bn. It seems likely,
therefore, that if Vietnam were to have five or
six stocks each with free float market cap of
USD1bn or more, MSCI would likely
consider its inclusion. Vietnam’s market
procedures and regulations are unlikely to be
an obstacle in our opinion.
 The attitude of the regulators. Investors have
a very positive impression of the stance of the
State Securities Commission (SSC). It is very
willing to listen to suggestions from brokers,
custodians and foreign investors on how
procedures can be improved, and has
frequently acted on these. It recently, for
example, allowed applications for a securities
trading code to be submitted in English.
 The new Securities Law, which comes into
effect next year, will clarify the legal position
of the market. Sensibly, it is in the form of
umbrella enabling legislation, with the
various responsible bodies (the SSC or
Ministry of Finance) empowered to draw up
regulations under a general framework. These
regulations will be published over the next
few months. Among changes that the law will
introduce: the Ho Chi Minh City Securities
Trading Center becoming a full stock
exchange with jurisdiction over listings; the
separation of securities brokers and asset
management companies; and the requirement
that any public company with 50 or more
abc
shareholders, whether listed or not, must
disclose financial information.
Risks
Besides the obvious risks – an economic
downturn, high beta in the event of a global equity
correction, and the Vietnamese equity market
being derated from its current somewhat elevated
valuation level – there are a number of structural
risks that investors in Vietnamese stocks need to
be aware of.
 Reliability of financial statements. Listed
companies disclose quarterly financials,
which are audited (but only by local auditing
firms). Statements are fairly basic, usually
without detailed notes or the sort of
breakdown found in more developed markets.
Unlisted stocks do not publish any financials,
although most will provide data to investors
who ask. Fund managers say they do not pay
much attention to financials. For most
companies, the quality of management and its
ability to grow the business are far more
important. The significance of good financial
data, rather, say fund managers, is that it
shows the company has effective
management information systems, which
allow executives to monitor whether
execution is proceeding according to plan.
 Excess capital raising. After the rise in the
market this year, many listed companies are
planning large new share issues. Sacombank,
for example, intended to issue 30 million new
shares (representing dilution of 16%) this
summer, but had to postpone the deal after the
market fell. The potential magnitude of large
listings over the next year is positive for the
market in the sense that it will increase
capitalisation, but it might take some time for
such a volume of paper to be digested.
13
 Macro
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1 September 2006

 The negative impacts of rapid change. There 17. Corruption perceptions for emerging Asia
is always the risk of a backlash against 2005 2003 vs 2003
economic reforms. Like China, Vietnam Taiwan 5.9 5.7 2%
Malaysia 5.1 5.2 -3%
remains a socialist country, with a clash of South Korea 5.0 4.3 15%
ideology between hard-line communists and a Thailand 3.8 3.3 17%
China 3.2 3.4 -6%
new generation who are concerned with India 2.9 2.8 5%
Vietnam 2.6 2.4 9%
making the country wealthier. The gap Philippines 2.5 2.5 3%
between rich and poor will inevitably widen, Indonesia 2.2 1.9 16%
Pakistan 2.1 2.5 -16%
and outside a few main cities, infrastructure
Source: Transparency International (Higher score=less corruption)
remains poor and could generate disaffection
towards the government. Vietnam does not,  Could Vietnam end up like China in the early
however, seem to suffer as much as China days of its stock market? Many investors will
from over-zealous development by local remember that the Shenzhen B share index
governments that results in inhabitants being fell by 52% between 1993 and 1998 (Chart
removed from their land or houses. The 18), despite China’s GDP growing by an
opposite risk, of corporate managers in charge average 10.6% a year during that time.
of state-owned companies becoming However, we do not believe this is a valid
excessively greedy, should also be borne in comparison. As described earlier, the
mind. equitisation process in Vietnam has been
 Corruption is often pointed out as a hurdle to much more thorough and resulted in real
Vietnam’s development, including by the privatisations. Foreign investors have much
government itself. While corruption clearly is easier access to the market. There is no
a problem, it mainly exists at a petty level, complicated set-up with H, A and B shares.
and examples of scandals at large companies Individual wealth in Vietnam is much more
are rare. Investors say corruption doesn’t limited than in China, and so there is unlikely
affect them. On Transparency International’s to be the same speculative scramble to buy
Global Corruption Perception Index, an shares. And, perhaps most importantly,
annual survey of international executives, Vietnam has been able to learn from China’s
Vietnam ranks 114 out of 159 countries but, mistakes.
in Asia, it is perceived to be less corrupt than
the Philippines, Indonesia or Pakistan, and is
not much worse than India (see Table 17).

14
 Macro
Pan-Asian Equity Strategy abc
1 September 2006

18. Chinese B share indexes 1993-2000 to gain exposure to Vietnam. But there are other
200 methods which investors can consider.

150 Country funds

100
The first Vietnam country funds were set up in
1994, with the first wave of interest in the
50
country. But many of these funds, which were
0 private equity focused since the stock market did
1993

1994

1995

1996

1997

1998

1999

not open until 2000, lost much of their value as

Shenzhen B Shanghai B
Source: Bloomberg
 Bird flu. Vietnam has had by far the largest
number of bird flu cases (93 – 45% of the
world total) and deaths (42 – 37%) of any
country, according to the WHO. If a
pandemic were to break out, investors might
perceive that Vietnam was particularly at risk.
On the other hand, Vietnam has not reported a
single new case this year (when globally there
have been 61 cases and 37 deaths). One could
also argue that the higher numbers are
because its reporting of bird flu cases has
been more honest than other countries’.
Other ways to get exposure
We believe that direct purchases of equities –
notwithstanding the illiquidity of the market and
somewhat expensive valuations – are the best way
the Asia crisis hit Vietnam in 1997-8.
Table 19 shows a full list of all 12 Vietnam
country funds. The key publicly traded funds are
as follows:
 Dragon Capital’s three Dublin-listed funds:
Vietnam Enterprise Investment Limited
(VEIL), with funds of USD346m, Vietnam
Growth (USD193m) and Vietnam Dragon
Fund (USD96bn). The last of these is targeted
purely at Japanese investors.
 PXP Asset Management’s two Dublin-listed
funds from: the PXP Vietnam Fund (assets
USD49m), and the PXP Vietnam Emerging
Equity Fund (USD48m). The latter fund has a
bias towards pre-listing stocks (which can be
up to 60% of the portfolio) and offshore
Vietnam-related names (up to 30%). The PXP
Vietnam Fund must have 70% of its

19. Vietnam country funds

BBG code Fund Management Co Incept Country Primary Premium Chg Fund
Date Exchange to NAV Pct NAV
(%) Ytd (USD
mn)
VIETENI KY Equity Vietnam Enterprise Inv Ltd Dragon Capital 11/8/1995 Cayman Dublin n/a 65.1 346.0
VOF LN Equity Vietnam Opportunity Fund Ltd VinaCapital 9/30/2003 Cayman London 34 35.0 229.4
VNL LN Equity Vinaland Ltd Vinaland 3/22/2006 Cayman London 12 n/a 198.7
VIETNGF KY Equity Vietnam Growth Fund Ltd Dragon Capital 9/15/2004 Cayman Dublin n/a 36.5 192.8
VNH LN Equity Vietnam Holding Ltd VNH n/a Vietnam London n/a n/a 113.3
VIETVDF BH Equity Vietnam Dragon Fund Dragon Capital 12/16/2005 Bermuda Dublin n/a 15.0 96.0
PXPVIET KY Equity PXP Vietnam Fund Ltd PXP Vietnam Asset Mant. 12/31/2003 Cayman Dublin n/a 41.8 49.4
PXPVEEF KY Equity PXP Vietnam Emerging Equity PXP Vietnam Asset Mant. 11/3/2005 Cayman Dublin n/a 24.8 48.0
TVF US Equity Templeton Vietnam SE Asia Fund Templeton 9/15/1994 US n/a -2 n/a 42.4
VFMVF1 VN Equity Vietnam Sec Investment Fund VietFund Management n/a Vietnam Vietnam 13 125.7 42.3
VIETNAP KY Equity Vietnam Frontier Fund Finansa 7/31/1994 Cayman n/a n/a n/a 9.9
BVF LN Equity Beta Viet Nam Fund Limited Williams De Broe 8/3/1995 UK n/a n/a n/a 8.0
LAZVFLI OS Equity Lazard Vietnam Fund Limited Lazard n/a Jersey n/a n/a n/a n/a
Source: Bloomberg

15
 Macro
Pan-Asian Equity Strategy abc
1 September 2006

investment in listed stocks. PXP is planning a
third fund for launch later this year.
 The VF1 Investment Fund, managed by
VietFund Management and listed on the Ho
Chi Minh City Securities Trading Center.
This too has a strong skew to unlisted stocks:
as of June 30, 77% of the portfolio was in
according to CB Richard Ellis. Occupancy rates
for all types of office space in HCMC are close to
97% (see Chart 20). There are only 519 Grade A
serviced apartment units in HCMC, and only
3,400 5-star hotel rooms. Foreigners may not own
property outright, but can buy 50-year leaseholds.
20. Office occupancy rates in Ho Chi Minh City

unlisted companies, 19% in listed and 4% in 100%

cash. VietFund Management is planning to
80%
increase the size of the fund (currently
60%
USD42m) and perhaps to split it in two. It
will also soon start to pre-market three new 40%

funds, and is interested in open-ended funds 20%

when these are allowed, possibly in 2007. 0%
1995 1997 1999 2001 2003 2005
 The Vietnam Opportunities Fund, run by
VinaCapital and listed on the AIM board of Source: CB Richard Ellis

the London Stock Exchange. This has assets

of USD229bn, and trades at a premium of
34% to NAV. It is perceived to be more
conservative than the other funds, with less
volatile performance. Vina also runs a
USD199m fund investing in Vietnamese
property.
Other funds are likely to be launched over the
next few months. Prudential is said to be planning
to list a closed-end fund on the HCMCSTC in
October. There are also many domestic “member
funds”, essentially privately placed mutual funds.
These are used by local institutions, such as
insurers and banks, as well as by companies as
proxy pension schemes (there are no pure pension
funds in Vietnam yet). They can potentially also
be used by foreign investors as an effective way to
buy into Vietnamese stocks.
Real estate
The property market is very underdeveloped and
therefore should offer some attractive
opportunities for long-term investment. For
example, Ho Chi Minh City has only five Grade
A office buildings, and Hanoi only nine,
But, short-term, the market has already risen a lot.
There is no good official data, but investors say
that the price of land in the central business
district of HCMC has gone up by as much as 10
times since 2001, and now costs USD5,000 per
square metre. Since 2004, a large number of high-
end apartments have been built in central HCMC
and, with prices for the best apartments reaching
USD2,500 per square metre, are by no means
cheap by the standards of the rest of Asia. Large
new developments, such as the Taiwanese-
developed Phu My Hung in South Saigon, have
soaked up demand for now. Good land sites are
becoming hard to find (with state-owned
companies liable to hang onto the land they have
inherited) and banks may lend only up to
USD20m for each building project. As a result of
this, since last year, the property market has been
weak and most investors expect this to continue
for some time longer.
Proxy equity investment
With the rise in valuations of Vietnamese stocks
this year, many international investors have

16
 Macro
Pan-Asian Equity Strategy abc
1 September 2006

looked at overseas-listed companies with links to
Vietnam as a proxy way of gaining exposure.
Some of the Vietnam country funds (see above)
are allowed to hold a significant percentage of
their portfolios in such stocks. What these
investors have in mind is how exposure to
Chinese growth was, until recently, better gained
by buying Hong Kong, Taiwanese – or even
Japanese and Korean companies – than by direct
investment in Chinese ones.
In our view, however, this is not a good analogy.
Hong Kong and Taiwan have many large
companies with a significant proportion of their
business in mainland China. This is not the case
with Vietnam. In addition, the size of China’s
economy means that for some exporters (for
example, Japanese construction machinery
manufacturers or Australian commodities
producers) the Chinese market is the key driver of
profit growth. Vietnam is simply not big enough
to have the same effect. We would also argue that
most of the problems with investing in Chinese
equities, at least in the early stages (division into
A, B and H shares, limited access to the domestic
market, continuing high state ownership,
uncertainty about which of a company’s assets
had been listed and which remained with a
parent), do not exist in Vietnam.
Table 21 shows a list of companies which have
exposure to Vietnam and which could be bought
as proxies. There are some small-cap companies
in the list which do have significant exposure. The
main business of Toronto-listed Tiberon
Minerals’, for example, is its stake in the Nui
Phao mine, which produces tungsten, fluorspar
and bismuth. Olympus Pacific Minerals explores
for gold in Vietnam. Both of these are legitimate
Vietnam plays – but they have market caps of

21. Offshore-listed Vietnam proxy plays

BBG Name Industry Exchange Mkt Ave daily Chg Description
code cap trade Pct Ytd
(USDm) (USDm)
AMATA TB Amata Corp Public Co Ltd Real Estate Oper/Develop Bangkok 419 1.7 2.8Develops industrial zones
APB SP Asia Pacific Breweries Ltd Brewery Singapore 2,530 1.1 72.2 Sells Tiger beer
ASN CN Asian Mineral Resources Ltd Metal-Diversified Venture 25 0.0 57.1 Nickel/copper mine
162 HK China Golden Development Hol Cruise Lines Hong Kong 17 0.1 32.5 Cruise organiser
7877 JP Eidai Kako Co Ltd Rubber/Plastic Products JASDAQ 24 0.1 -47.0 Plant in Vietnam
FSG PW Grupa Kapitalowa Fasing S.A. Metal Processors&Fabrica Warsaw 10 0.0 71.9 Plant in Vietnam
016450 KS Hansae Co Ltd Apparel Manufacturers Korea SE 67 0.1 6.2 Plant in Vietnam
6904 JP Harada Industry Co Ltd Auto/Trk Prts&Equip-Repl JASDAQ 76 0.1 -17.3 Plant in Vietnam
7279 JP Hi-Lex Corp Wire&Cable Products Osaka 486 0.3 -19.0 Plant in Vietnam
HT TB Hua Thai Manufacturing Pcl Apparel Manufacturers Bangkok 26 0.0 -1.0 Plant in Vietnam
2332 HK Hutchison Telecommunications Cellular Telecom Hong Kong 8,297 6.5 21.3 Stake in mobile company
6440 JP Juki Corp Appliances Tokyo 718 8.2 13.8 Plant in Vietnam
MINT TB Minor International Pcl Hotels&Motels Bangkok 744 0.6 50.4 Anantara hotels
7211 JP Mitsubishi Motors Corp Auto-Cars/Light Trucks Tokyo 9,693 50.6 -15.5 Plant in Vietnam
7230 JP Nissin Kogyo Co Ltd Auto/Trk Prts&Equip-Orig Tokyo 1,384 3.4 15.3 Plant in Vietnam
NPX NZ Nuplex Industries Limited Chemicals-Plastics NZX 801 1.2 41.1 Plant in Vietnam
ONGC IN Oil & Natural Gas Corp Ltd Oil Comp-Explor&Prodtn Mumbai 36,652 8.2 1.6 Oil exploration
OYM CN Olympus Pacific Minerals Inc Gold Mining Toronto 68 0.0 27.8 Gold miner in Vietnam
PDI TB Padaeng Industry Pub Co Ltd Non-Ferrous Metals Bangkok 214 1.0 104.3 Mines zinc ore
SIP BB Sipef Nv Agricultural Operations EN 217 0.1 16.0 Plantations in Vietnam
SIA LN Soco International Plc Oil Comp-Explor&Prodtn London 1,756 8.6 64.5 Oil exploration
1904 JP Taisei Oncho Co Ltd Engineering/R&D Services JASDAQ 61 0.1 -17.2 Engineering in Vietnam
TBR CN Tiberon Minerals Ltd Metal-Diversified Toronto 178 0.2 -4.4 Stake in Nui Phao mine
TPJ LN Triple Plate Junction Plc Gold Mining London 29 0.0 -28.9 Gold miner in Vietnam
TRI GR Triumph International Ag Apparel Manufacturers Frankfurt 244 0.0 2.6 Plant in Vietnam
2597 JP Unicafe Inc Coffee Tokyo 99 0.1 -1.7 Coffee
VII AU Vietnam Industrial Inv Ltd Metal Processors&Fabrica ASX 6 0.0 -20.0 Steel producer
551 HK Yue Yuen Industrial Hldg Athletic Footwear Hong Kong 4,393 3.9 -2.5 Plant in Vietnam
ZIIC AB Zamil Industries Steel-Producers Saudi Arabia 1,449 32.4 -12.8 Plant in Vietnam
Source: HSBC, Bloomberg

17
 Macro
Pan-Asian Equity Strategy abc
1 September 2006

USD178m and USD68m respectively. Hutchison
Telecommunications (2332 HK, Overweight),
which will launch a mobile phone service in
Vietnam in either late 2006 or early 2007, is an
interesting option on the market although, even if
the business succeeds, it is unlikely to represent
more than 2% of HTIL’s enterprise value.
We are less convinced, however, that other
companies on the list represent real exposure to
Vietnam. Yue Yuen, for example, manufactures
31% of its shoes at its plants in Vietnam, but
almost all of these are for export. The same is true
of other manufacturers with plants in Vietnam.
Other investors go even further and include
companies like Air India, OCBC or Kepco, all of
which have some interests in Vietnam. We find it
hard to see how, even if Vietnam takes off, these
companies will see more than a minimal impact to
their profits.
Bonds
Foreigners can buy Vietnamese government debt
and other bonds, which trade mainly on the Hanoi
Securities Trading Center. But yields are not
particularly attractive: 5-year government bonds
yield around 8.3% and 10-year bonds yield 8.9%.
But, with inflation at 7.5%, real yields are low.
Foreign investors also face a 20% withholding tax
on interest income (and, confusingly, this could
soon be switched to a 0.1% tax on the principal
amount each time a bond is sold).
Vietnam’s fundamentals would justify an upgrade
to BB over the next six to nine months (see the
chapter on “Credit assessment” in our economics
report for a detailed explanation of why).
Private equity
A number of foreign funds – most notably Dragon
Capital – get involved with state-owned
companies prior to the equitisation process and
essentially offer free corporate finance advice in
the run-up to the IPO. This allows them to judge
which companies to bid for in the auction process.
It also allows them to buy into companies where
the management is just starting to gain autonomy
and where the immediate upside could therefore
be large. The eventual listing of the company
offers a simple exit strategy.
This is clearly an attractive business for private
equity firms willing to devote the resources to it.
But these resources, naturally, would be large,
including a local presence and the posting to
Vietnam of experienced foreign corporate
financiers. The local asset management
companies have already built strong businesses in
this area, and it would not be easy for a large
international private equity firm to break in
quickly.

Vietnam issued its first foreign currency

sovereign bond last year, with a principal value of
USD750m maturing in January 2016. But this
trades at a spread of only 148 bp over US
Treasuries. That is significantly less than the
spreads on foreign currency bonds issued by the
two countries in Asia with similar credit ratings:
Indonesian USD debt of a similar maturity trades
at a spread of 179 bp and the Philippines at a
spread of 203 bp. All three have BB- ratings from
Moody’s. Our credit research team believes that

18
 Macro
Pan-Asian Equity Strategy abc
1 September 2006

Practical guide
 Opening an account to trade Vietnamese stocks is straightforward
 Restrictions on foreign investor activities are light
 Procedures for trading listed stocks and OTC stocks are totally
different

How to buy Vietnamese Some investors complain that the process is

stocks
Custodian banks operating in Vietnam (of which
HSBC is the largest) and local brokers can
provide detailed, specific information on the rules
and procedures for foreigners to trade Vietnamese
stocks. But, to give a taste of the requirements and
issues, we provide here a brief guide.
Setting up
Listed stocks
The procedure for foreign institutional investors
to open a trading account in Vietnamese stocks is
fairly straightforward.
cumbersome, and that the authorities require
superfluous information. More seriously, the rules
require that each institution appoint one
“delegated person” who should sign off on each
trade ticket on the day of the trade. This person
does not need to be resident in Vietnam. Many
institutions are reluctant to do this (and custodians
cannot provide this service) and, in practice, trade
tickets tend to be signed in batches once a month
or so. Some institutions also balk at having to
provide a copy of the passport of their delegated
person, typically their CEO or CIO.
OTC stocks

For listed stocks, the investor first needs to apply The procedure is different for unlisted stocks. The
for a securities trading code. This requires filling foreign institution needs to open a capital
in a four-page application form (in English) and contribution account with a commercial bank and
appending documents (e.g. the articles of register this within two weeks with the State Bank
association and certificate of incorporation) that of Vietnam. There is no need to obtain a securities
describe the institution. These have to be trading code. Information required is less – the
notarised and consularised by the Vietnamese investor need submit only its certificate of
consulate in the home country. The supporting incorporation.
documents have to be translated into Vietnamese
and notarised. The approval process is automatic
(no one can recall an institution being denied a
trading code) and generally takes about two
months. Custodian banks can help with the
application process.

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Trading Orders for 10,000 units (generally 10 shares per

Listed stocks
Investors can open an account with only a single
broker; all trades must be done through this
broker. There are 16 brokers currently registered,
but the number is likely to increase over the next
12 months. Some international investors are
concerned with the tiny capitalisation of the
brokers – the largest has the equivalent of only
USD6m. No international investment banks have
broking licences yet in Vietnam, but it is expected
that a number of joint ventures (the only form
allowed) will be set up soon. The brokers are
shown in Table 22, ranked in order of the
percentage of foreign turnover they comprised in
2005.
Trades must be pre-funded, i.e. funds need to be
in the account before the order is placed. This is
unusual – in Asia, only Taiwan and China require
it – and market participants are lobbying the State
Securities Commission to lift the requirement for
institutional investors.
On the Ho Chi Minh City Securities Trading
Center (HCMCSTC), there are three matched
order sessions a day (at 8:40, 9:30 and 10.30) and
one negotiated or “put-through” session at 11:00.
unit) or more have to be executed via the put-
through system.
Over the past three months, the centre has traded
on average USD5.1m a day. Trading is done
exclusively through terminals on the floor of the
exchange (which is housed in a grand colonial
building that used to be the parliament of the
South Vietnamese regime). The Hanoi Securities
Trading Center trades only about USD250,000 a
day, with 80-90% of trading in one stock, Pha Lai
Thermal Power (PPC).
From Q2 2007, the HCMCSTC will move to a
continuous trading process by upgrading its
system (which was bought from the Stock
Exchange of Thailand). Details of this, including
the trading hours, have not been finalised. It is
likely that trading will then be permitted from
screens in brokers offices.
Listed stocks have been immobilised at the
Vietnam Securities Depository (VSD) and cash
settlement is entirely via the settlement bank
(BIDV). Settlement is T+3, but funds payment is
T+2. In other words, Vietnam does not have a
delivery versus payment system, and investors

22. Vietnamese stockbrokers

Abbreviation Broker Web site Capital % equity % foreign
(VND bn) turnover equity
trading
ACBS ACB Securities Company Ltd. www.acbs.com.vn 43 12% 36%
SSI Saigon Securities Incorporation www.ssi.com.vn 20 17% 34%
BVSC Bao Viet Securities joint stock Company www.bvsc.com.vn 43 23% 24%
VCBS Vietcombank Securities Company, Ltd. www.vcbs.com.vn 60 8% 3%
AGRISECO Agribank Securities Company, Ltd 100 4% 2%
FSC The First Securities Company www.fsc.com.vn 43 4% 1%
HSC HoChiMinh City Securities Corporation www.hsc.com.vn 50 3% 1%
DAS Eastern Asia Bank Securities Company, Ltd www.eabbank.com.vn 21 3% 0%
MKS MeKong Securities Corporation www.mekongsecurities.com.vn 6 1% 0%
BSC BIDV Security Company, Ltd www.bsc.com.vn 100 11% 0%
ICBS Incombank Securities Company, Ltd 55 8% 0%
TSC Thang Long Securities Company, Ltd 43 7% 0%
HASECO Hai Phong Securities joint stock Company 22 1% 0%
HBBS Habubank Securities Company Ltd n/a n/a n/a
DVSC Dai Viet Securities Corp n/a n/a n/a
ABSC Anh Binh Securities Company Ltd n/a n/a n/a
Source: State Securities Commission, Ho Chi Minh Securities Trading Center

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1 September 2006
must take overnight exposure to the settlement
bank. Once the trade has been executed,
communication takes place directly between the
depository and the investor’s custodian.
Commissions are capped at 50bp, but brokers
publicly advertise 25bp and large institutions say
they typically pay 20bp.
Restrictions on foreign investors are light.
Foreigners can buy up to 49% of listed stocks
(and the listed investment fund) except banks,
where the limit is 30% (and 10% per investor).
The trading system will not accept orders from
foreign investors that would take the ownership
level above the limit. (As mentioned earlier in this
note, discussion is ongoing about raising the limit
to 100%, except for sensitive sectors.) There are
no FX restrictions or limits on repatriating
capital, provided that the transactions were for
securities trading. The investor’s account may be
used only for securities.
The only tax on equities for overseas investors is
a securities transaction tax of 0.1% of gross sale
proceeds. There is no withholding tax on
dividends, or capital gains tax.
Short-selling and securities lending are not
permitted. Daily fluctuation of listed stock prices
is limited to ±5%.
Some international investment banks have begun
to sell participatory notes offshore, using their
own securities trading code. This is useful for
overseas investors who do not have direct access
to the Vietnamese market. However, the system is
not formally approved by the Vietnamese
authorities (trades don’t have to be reported, for
example) and some local fund managers are
lobbying to have it stopped. This will particularly
become an issue now that many of the largest cap
stocks have reached their foreign investor limits:
the notes in these names could start to trade at a
premium to the local-traded underlying stock.
abc
OTC stocks
Trading in unlisted stocks is largely unregulated.
Two big brokers post indicative prices in the
HCMCSTC’s daily bulletin. Other brokers have
prices available on request. Not only brokers, but
other fixers and middlemen, are able to source
stocks.
Stock is still in the form of physical scrip
(although this should change next year when the
new Securities Law takes effect). The broker
controls the process of trading: some may require
a margin payment ahead of the trade but there is
no legal requirement for this.
Settlement can take between one and three
months. After registration of the change of
ownership (usually with the company itself), the
physical paper is transferred to the broker.
Custodians, including HSBC, will hold the paper
and arrange payments on behalf of investors.
Foreigners are limited to owning 30% of unlisted
stocks, but this is very hard to monitor and police
since most companies handle their own stock
registrations and the level of foreign ownership is
not publicly known. Market observers say that
some OTC stocks may well already be over their
limit, but foreigners have been allowed to
continue to buy.
Disclosure and corporate governance
Approval for listing is currently given by the
State Securities Commission, but this will switch
to the HCMCSTC (which will be renamed the
Vietnam Stock Exchange) when the new
Securities Law comes into effect next year.
Companies to list in Ho Chi Minh must have
authorised capital of at least VND5bn, two
consecutive years of net profit, and a healthy
financial situation. The authorities also look at the
composition of the board of directors. (The capital
required to list on the Hanoi Securities Trading
Center is less.)
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1 September 2006
As for disclosure, after listing, companies are
required to post quarterly financials (including
P&L, balance-sheet and cash flow statement),
monthly trading updates (for example, sales data),
as well as to disclose any material information.
This is all posted on the HCMCSTC web site, and
most is translated into English.
OTC-traded stocks have no requirement on
disclosure. The only way to see their financials is
to ask the company (or get them from a broker
that has asked the company).
Investors have to make a disclosure filing to the
State Securities Commission if they buy 5% or
more of a listed company. After this, each trade
has to be reported, until ownership falls below 5%
again.
Useful resources
Finding information on the Vietnamese equity
market is not a simple matter. The usual data
vendors have very limited coverage. Broker
research is almost non-existent. Even finding a
description of what a company does can be hard.
There are no published earnings forecasts, and so
no consensus data. Even figuring out the market
cap or historic PE of a stock can be very time-
consuming. The internet offers some information,
but most Vietnam-based sites are very slow and
badly designed.
Bloomberg carries basic price and turnover data
for the 48 stocks listed in Ho Chi Minh City, but
no earnings numbers. For the overall Ho Chi
Minh market, it also has index, turnover and
advances/declines data. Datastream has nothing
on Vietnamese stocks. CEIC carries only monthly
stock market price and turnover data (but a good
range of economic series).
The main source of corporate information is the
Ho Chi Minh City Securities Trading Centre
(www.vse.org.vn). This carries various price data
and all corporate announcements (although these
22
abc
are not easily searchable by company). There are
comprehensive descriptions of the rules and
processes for trading stocks. Unfortunately, the
web site is excruciatingly slow and pages crash
more often than they load properly. The
HCMCTC’s daily bulletin, available on the web
site, is also essential reading for local brokers: it
carries official announcements, statistics, and
indicative prices for around 60-70 OTC stocks
posted by two brokers. It is only in Vietnamese
but most of the tables are easily decipherable for
non-Vietnamese speakers.
The web site of the Hanoi Securities Trading
Center (www.hastc.org.vn) is in Vietnamese only,
has only limited information, and is even slower
than its counterpart in Ho Chi Minh.
The web sites of the biggest local brokers are a
useful source of information. Saigon Securities
has probably the best of these. Its site
(www.ssi.com.vn) carries some basic research on
most of the Ho Chi Minh listed stocks, with
descriptions of what the company does, its history
and (often rather out of date) financials. It also
presents the securities trading centres’ data in a
slightly more user-friendly format. Vietcombank
Securities (www.vcbs.com.vn) has similar
information, and the best tables for market data.
Some of the large-cap companies that institutional
investors might want to invest in have good web
sites with some IR-type information. The web
sites of the following are worth referring to if you
are planning to meet or invest in the company:
 Asia Commercial Bank (www.acb.com.vn)
 Kinh Do (www.kinhdofood.com)
 REE (www.reecorp.com)
 Sacombank (www.sacombank.com.vn)
 Vinamilk (www.vinamilk.com.vn)
 Macro
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1 September 2006

Government sites are generally not very useful.

The State Securities Commission web site
(www.ssc.gov.vn) has some legal documents not
available elsewhere, but is rather out of date. The
State Bank of Vietnam has a web site
(www.sbv.gov.vn) that is only in Vietnamese. The
Ministry of Finance site (www.mof.gov.vn), on
the other hand, carries a surprisingly wide range
of policy papers and has a searchable database of
regulations and laws. It is also fast.

There are a number of web-based news sites, but

all appear to be at least partly sponsored by the
government and therefore offer the bland official
news found in most communist countries. There
are, however, occasional technical reports on
industrial sectors which may be of use. The best
of these sites are:

 Viet Nam News

(www.vietnamnews.vnagency.com.vn)

 VietNamNet Bridge (english.vietnamnet.vn)

 Thanh Nien News

(www.thanhniennews.com)

 Vietnam Investment Review

(www.vir.com.vir).

In the end, there is no substitute for on-the-ground

research. Companies are generally willing to meet
investors – although the biggest ones which have
reached the foreign ownership limit are becoming
increasingly reluctant. Visits to government
officials, the securities trading centres, and local
brokers (who are well set up to deal with foreign
investors) are also worthwhile. The financial
community in Ho Chi Minh is small, and most of
its members are only too delighted to chat about
the market. HSBC is able to help arrange trips for
clients who want to go to Vietnam to “kick the
tyres”.

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1 September 2006

Disclosure appendix
This report is designed for, and should only be utilised by, institutional investors. Furthermore, HSBC believes an investor's
decision to make an investment should depend on individual circumstances such as the investor's existing holdings and other
considerations.

Analysts are paid in part by reference to the profitability of HSBC which includes investment banking revenues.

For disclosures in respect of any company other than the primary subject(s) of this research, please see the most recently
published report on that company available at www.hsbcnet.com/research.

The following analyst(s), who is(are) primarily responsible for this report, certifies(y) that the views expressed herein
accurately reflect their personal view(s) about the subject security(ies) and issuer(s) and that no part of their compensation was,
is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Garry
Evans

* HSBC Legal Entities are listed in the Disclaimer below.

Additional disclosures
1 This report is dated as at 1 September 2006.
2 All market data included in this report is dated as at close 30 August 2006, unless otherwise indicated in the report.
3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its
Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research
operate and have a management reporting line independent of HSBC's Investment Banking business. Chinese Wall
procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or
price sensitive information is handled in an appropriate manner.

24
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1 September 2006

Disclaimer
*Legal entities as at 25 August 2006 Issuer of report
HSBC Bank Middle East Limited, Dubai; The Hongkong and Shanghai Banking Corporation The Hongkong and Shanghai
Limited, Hong Kong; HSBC Securities (Asia) Limited, Taipei Branch; HSBC Securities (Canada) Banking Corporation Limited
Inc, Toronto; HSBC Securities (France), Paris; HSBC Trinkaus & Burkhardt AG, Dusseldorf;
000 HSBC Bank (RR), Moscow; HSBC Securities and Capital Markets (India) Private Limited, Level 19, 1 Queen’s Road Central
Mumbai; HSBC Securities (Japan) Limited, Tokyo; HSBC Securities Egypt S.A.E., Cairo; HSBC Hong Kong SAR
Investment Bank Asia Limited, Beijing Representative Office; The Hongkong and Shanghai Telephone: +852 2843 9111
Banking Corporation Limited Singapore branch; The Hongkong and Shanghai Banking Telex: 75100 CAPEL HX
Corporation Limited, Seoul Securities Branch; HSBC Securities (South Africa) (Pty) Ltd, Fax: +852 2596 0200
Johannesburg; HSBC Pantelakis Securities S.A., Athens; HSBC Bank plc, London, Madrid,
Website: www.hsbcnet.com/research
Milan, Stockholm, Tel Aviv, HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul
Degerler A.S., Istanbul; HSBC Stockbroking (Australia) Pty Limited.
This document has been issued by The Hongkong and Shanghai Banking Corporation Limited ("HSBC") in the conduct of its Hong Kong
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HSBC has based this document on information obtained from sources it believes to be reliable but which it has not independently verified;
HSBC makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness.
Expressions of opinion are those of the Research Division of HSBC only and are subject to change without notice. HSBC and its affiliates
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otherwise, without the prior written permission of The Hongkong and Shanghai Banking Corporation Limited. MICA (P) 137/08/2006

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Global Equity Strategy Team

Global Equities Asia Pacific Equities
Kevin Gardiner Garry Evans
Head of Global Equity Strategy Head of Pan-Asian Equity Strategy
+44 20 7991 6714 kevin.gardiner@hsbcib.com +852 2996 6916 garryevans@hsbc.com.hk
Robert Parkes Steven Sun
+44 20 7991 6716 robert.parkes@hsbcib.com +852 2822 4298 stevensun@hsbc.com.hk
Patrik Schöwitz Akane Nishizaki
+44 20 7991 6702 patrik.schowitz@hsbcib.com +813 5203 3943 akane.nishizak@hsbc.co.jp
Jeffrey Fang
+852 2996 6602 jeffreyfang@hsbc.com.hk
Emerging Equities
John Lomax
+44 20 7991 5204 john.lomax@hsbcib.com