Vietnam Stocks Might Be Getting Too Hot to Handle

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(Bloomberg Gadfly) -- For investors in Vietnam, discretion is increasingly the better part of valor.

You won't see any sign of caution in the current IPO frenzy, though. Far from slowing down, Southeast Asia's busiest market for stock offerings over the past year seems to be revving up.

GIC Pte, Singapore's sovereign wealth fund, is spending about $850 million for a 7.1 percent stake in the listing by Vingroup JSC, Vietnam's biggest developer, of its luxury residential arm, Bloomberg News reported Tuesday. Vinhomes JSC's planned $2 billion initial sale would be the country's biggest ever.

Vincom Retail JSC, the Vingroup shopping-mall operator that raised $708 million last October, currently holds the record for the nation's biggest IPO. But it will soon be dethroned by a 21 trillion dong ($922 million) share sale by Techcombank, a Warburg Pincus-backed lender focused on serving affluent customers. Once again, GIC is a cornerstone investor. 

Investors are proving more circumspect toward privatization deals. The communist government's desire to use buoyant sentiment to hawk state-owned firms at aggressive valuations is finding few takers.

Vietnam Cable Television Corp., the country's second-largest pay-TV provider, had to cancel its stock-market debut last week after just one investor turned up at the auction. State-owned hydroelectric contractor Song Da Corp. is trading 28 percent below its December IPO price. The sale of Power Generation Corp. 3 was an even bigger flop: The country's second-biggest electricity generator has inflicted a 35 percent loss on investors since its February IPO.  

Make no mistake, much is going right in Vietnam. The economy, which went into a tailspin after a 2012 banking crisis and a collapse in property prices, is in robust health. GDP expanded 7.4 percent in the first quarter, the most in a decade. A sizable middle-class with discretionary purchasing power is taking shape as the crude oil, coffee and footwear exporter transforms itself into a manufacturing hub for the likes of Samsung Electronics Co.  

Signs of hubris are also emerging, however. Take Vingroup again: The conglomerate is now getting into autos. Just as Malaysia's Proton wasn't ready in 1983 to make indigenous cars, it's possible Vinfast, too, is being a tad showy in wanting to manufacture its own sedans, sport-utility vehicles and eventually electric cars.

Perhaps the biggest risk is that Vietnam is getting expensive. The 15-stock MSCI Vietnam Index should benefit the most if the country casts off its frontier status to storm into the emerging-markets club. Trouble is, after surging almost 70 percent over the past year, the benchmark now trades at around 30 times 12-month trailing earnings.

With U.S. President Donald Trump tentatively signaling that a 12-nation Trans Pacific Partnership may be back on the table, Vietnam might indeed be the next Asian manufacturing powerhouse. But the market is running ahead of the story. An index that's more expensive than tech stocks in Shenzhen is priced to perfection. If investors get their timing wrong, they could get burned.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

©2018 Bloomberg L.P.

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