- Three largest airports
- Vietnam Airlines
- Vinatex, Vietnam’s largest garment manufacturer
- Mobifone, Vietnam’s third-largest telecom operator
The elephant in the room for the last week has been China. Last week, the $52 billion equity Vietnam Index had its biggest weekly retreat since 2001 over tensions with China. China National Offshore Oil Corp moved an $800 million oil rig into the waters that international law claims are Vietnam’s.
In addition to the oil rig, China sent 80 ships into the area. China’s military dwarfs Vietnam’s, though the Vietnamese have recently bought six submarines (three are deployed) and fighter jets are configured for attacking ships.
The two countries do have a history of cooperation and analysts are hoping that a diplomatic solution can be worked out. This might include a joint venture on any oil extracted from the area, using China’s capital equipment. The last time there was a border dispute between these countries was 1979. It took more than a decade before all issues were worked out, so there is reason and precedent to be worried.
Since price and proof rarely happen at the same time, what about the valuation of VNM?
In terms of multiples, its price-to-book is 1.29; price-to-earnings is 10.6; and price-to-sales is 0.95, as the charts below show.
All these variables point to VNM trading below its fair value. With Vietnam’s fundamentals (GDP, inflation, exports, etc.) moving in the right direction, it appears that one is being paid to take the risk of investing in VNM.
Geopolitical events, like those unfolding in the East China Sea, are harder to handicap, but history usually shows that investing once the event has been triggered—if the price is right—can prove to be productive.
At the time this article was written, the author’s firm, Main Management, held a long position in VNM on behalf of clients.
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