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Dragon favors Vietnam consumer and drug stocks
Dominic Scriven, director of investment fund Dragon Capital, talks with Bloomberg from Hanoi about the performance of Vietnam’s stock market, the outlook for corporate earnings and his investment strategy.
What is going on with the VN-Index? It showed signs of a recovery from late June but it closed lower each day last week.
Dominic Scriven: You’re quite right, we had a bit of a roller coaster – not just this year actually but for the last 12 months.
In essence, what I think we’ve been seeing is the market adjusting from previous very high levels in the early part of last year and reflecting the reassessment that needs to go on given the broad macro picture.
We’ve had this stone-like drop for most of the first half of the year where the index plummeted below the level of 400 and at that sort of level people began looking very seriously and going, well we’ve really got some dramatic values here on offer.
And I think that, combined with some sense of stabilization in the macro picture, brought a lot of retail investors back into the market.
So the run in June was driven very much by (foreign) domestic retail investors.
But is there really stabilization in the markets?
We’re now in a process of reflecting on what the earnings outlook is through the end of this year and then into next year and indeed the first half has shown a sort of fairly mixed picture of reporting (of earnings results).
We’ve seen, for example, banks reporting (results that were) lower than expected but still comfortably above last year’s levels.
We’ve seen some of the non-bank financials taking some relatively big hits and the broader corporate sector is a bit of a mixture.
But clearly where people have exposure to the asset markets they’re being asked to write down, that’s the first half.
The second half – people, I think – are just beginning to try and reflect what that’s going to bring.
For the market as a whole, we’re looking for some slight positive net profit growth but we are calling a decline in EPS growth for the year as a whole of some 8-9 percent.
So given those assumptions, have you been repositioning your investments, are you making any big changes for the second half of the year?
Well as you’re aware, this is not a hugely liquid market but I think the sensible approach has been to reflect: where are the predictable, visible earnings-growth companies and how can one get properly positioned in those?
That would be the foods, the pharmaceuticals, the other consumption stocks [like] beverages.
There will be a time to get more properly positioned in what we call the asset-based businesses; the banks and the real estate companies.
But we probably expect that not to be attractive until the latter part of this year, maybe even the early part of next year.
So does that mean that you’re going to be buying more, food, pharmaceuticals and consumption [stocks] for the rest of the year?
That would be correct. Without giving away too much, yes.
Thanhnien
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