Buyout Opportunities Seen in Vietnam Imbalances: Southeast Asia – Bloomberg 11-06-13

Salient to Investors:

Avinash Satwalekar at Vietcombank Fund Mgmt, a joint venture of Franklin Templeton Investments said:

  • The time is right for buyout firms to invest in Vietnam as monetary and fiscal policy makers have created a very benign environment for investors and reforms take effect over the next 3 to 5 years.
  • Low valuations, constrained bank lending and an improved corporate landscape creates an opportunity to buy companies before the economy picks up and while the water is murky.
  • His favorite sectors are agriculture, retail, education and food and beverage.
  • Banks are asking for more collateral than some firms can afford and that is where private equity can step in.

Vietnam’s benchmark VN Index is at 12.7 reported earnings, the cheapest equities market in Southeast Asia.

Luke Pais at Ernst & Young said private equity people are still waiting but the number of deals has increased and people are spending more time looking at that market.

Preqin said the 5 transactions this year is the highest number in five years and for biggest amount since at least 2006.

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Bubble, Bubble, Money and Trouble – Barron’s 06-01-13

Salient to Investors:

Marc Faber at the Gloom Boom & Doom Report says:

  • High-end assets from stocks to art to real estate are in a bubble caused by central bank money-printing. This money doesn’t increase economic activity and asset prices in concert, instead creates dangerous excesses in countries and asset classes. Money-printing fueled the stock-market bubble of 1999-2000, the housing bubble in 2008, and the commodities bubble.
  • Owns equities because easing money is flowing into the high-end asset market, including stocks, bonds, art, wine, jewelry, and luxury real estate.
  • The government bailed out S&L depositors in the late 1980s. Treasury and the Fed bailed out Mexico in the mid-1990s. The Fed-supervised bailout of Long-Term Capital Management in 1998 gave a green light to Wall Street to keep leveraging up. Neither Keynes or Friedman would have approved current policies.
  • In the fourth year of an economic expansion, near-zero interest rates will lead to a further misallocation of capital. The S&P 500 is a near a long-term top and could rally to 2000 in the next month or two before collapsing.
  • Money-printing leads to a widening wealth gap. In the Western  democracies, large numbers of people will at some point target the rich through wealth taxes or significantly higher tax rates. The rich have seen huge wealth accumulation in Asia in recent years but the middle class has seen diminishing purchasing power. Growing wealth inequality has always been corrected either peacefully, through taxation and wealth redistribution, or by revolution, as in Russia. European voters will turn against the arrogance of the bureaucracy.
  • China will not tolerate US interference long-term in their region.
  • 25% in equities – no US, some Asian shares and Singapore REITs.
  • Except for some high dividend stocks, Philippines, Indonesia, and Thailand markets are unattractive having quadrupled from post-crisis lows. Dislike Chinese equities unless conditions worsen and China prints money like crazy, when the currency will weaken and stocks will rise.
  • Japanese stocks made a generational low in 2012 and won’t go below that. Like Japanese REITs.
  • Vietnam exports are strong, and the people are hard-working. The beach between Danang and Hoi An will be a huge resort area in the future and is only an hour and 10 minutes by plane from Hong Kong, and two hours from Singapore. Likes stocks with yields of 5% to 7%.
  • Many rich Asian companies have been buying other Asian companies. Asia long-term economic outlook is good. Laos, Cambodia, and Myanmar are opening up, and Vietnam is reopening. Myanmar market is hot but like Vietnam near its peak in 2006-07, looks dangerous for investors.
  • The huge credit bubble in China won’t end well. The economy officially grew 7.7% in Q1 but in truth is growing 4% a year, at best. China reports export figures to Taiwan, South Korea, Hong Kong, and Singapore that are much larger than those countries report as imports.
  • Markets in Europe have made major lows so own European shares – and plan to buy more – and corporate bonds, and real estate. Money in European banks is no longer 100%.
  • Like Singapore REITs whose yields of 5% and 5.5% compare favorably with US REITs. If inflation picks up, REITs can raise their rents.
  • 25% in gold and add to positions every month. When the asset bubble bursts, financial assets will be particularly vulnerable.

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Vietnam’s Top Fund Sees Home-Grown Rally in 2013: Southeast Asia – Bloomberg 12-27-12

Salient to Investors:

Andy Ho at VinaCapital Investment Mgmt, Vietnam’s biggest fund manager, said the Vietnam stock market will rise steadily in 2013 to reflect an economic expansion of between 5 percent and 6 percent. Ho likes basic sectors that contribute to the growth of the domestic economies, like pharmaceuticals, education and agriculture. Ho said inflation is tamed and so there is plenty of room to loosen monetary policy, while a young and growing population of 90 million and many natural resources creates tremendous opportunities for investors.

The VN Index trades at 10.4 times estimated earnings versus its 5-yr average of 11.2 and lower than the six Southeast Asian markets. Earnings per share for the Index companies are expected to rise 9.3 percent in 2012 and 18 percent in 2013.

Dominic Scriven at Dragon Capital is cautiously optimistic about the outlook for stocks as concerns about non-performing loans at banks are countered by easing inflation. The IMF said banks have reported bad debt to be 4.5 percent of outstanding loans versus the central bank’s estimate of 8.75 percent. Scriven says we are some way through this damaging process, but confidence at all levels is very low – banks aren’t lending, companies aren’t investing, consumers aren’t buying, people aren’t investing in real estate. Scriven has reduced holdings in banks and is heaviest weighted in consumer stocks.

The Asian Development Bank said private consumption and investment are bolstering Southeast Asian economies even as the rest of the region is forecast to expand less than initially estimated, expecting Southeast Asia to grow 5.3 percent in 2012.

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