Stock market nosedive could be near the end: PXP’s Snowball

Friday, May 16, 2008
Viet Nam’s stocks may be bottoming out, said Kevin Snowball, a director of PXP Viet Nam Asset Management Ltd. in Ho Chi Minh City, in a television interview in Singapore this week.

The Ho Chi Minh Stock Exchange’ VN-Index hit its ninth-straight day of losses Thursday, losing 8.83 points, or 1.85%, to dose at a fresh 52-week-low of 466.67.

The index has fallen more than 49% this year to become the world’s worst performing stock exchange.

Tell us a little bit about the Viet Nam Value Fund that PXP is preparing to introduce to the market–how much and when is it likely to be launched?

Kevin Snowball: We’re looking for a maximum of US$200 million and we’re very much in the early planning and discussion stages at the moment because it’ll take four or five months to get a listing organized.

So we’re looking at various ways to speed that process up, whether it be launching as a private fund initially, which we will seed, and then beginning the IPO process at the same time.

The point of it being (called) the Vietnam Value Fund is that we are starting to see value in the market now and that may not necessarily be the case in October/November.

Have you got people hammering on your door wanting to give you the money? Do you think you’ll have any problems getting this $200 million?

Not necessarily hammering on the door.

Obviously people tend to be much keener on markets when they’re up than when they’re down as significantly as ours is over the year to date.

But we are seeing some interest out there.

If you look back two years to the last time the index was at this level, when really the whole history of the interest in (the stock market of) Vietnam started in early 2006, then anybody who missed the first run is being given a second opportunity, if you like.

And unless you believe that the economic problems are destroying the long-term story in Vietnam – which we very dearly don’t – then this seems to us to be a good opportunity to have another look.

Well, not everybody does believe that the economic problems are resolvable, at least in the short-term. Last Friday, the Royal Bank of Scotland issued a research report called “Vietnam – not another China,” which says Vietnam lacks the same scale advantages as China. Now that suggests that the kind of growth we’ve seen in China, which has gone on now for two decades, is not going to be repeated in Viet Nam. What’s your view?

I’ve only seen a brief summary of the report (and) the story seems to be predicated on the fact that Vietnam has a population of only 85 million whereas Guang Dong (Province), for example, which is responsible for 30 percent of China’s total exports, has a population of about 95 (million) and then can also draw on surrounding provinces for another 150 or so million people.

It (the report) does say that Vietnam’s weight is roughly half the China level and I think the point is that there is no new China.

China’s population is roughly 25 percent of the world’s and Vietnam is the new Viet Nam (not the new China).

They do conclude that Vietnam is the next Asian Tiger.

We’ve been saying for the last four or five years Viet Nam is the last Asian Tiger.

So that said, we still have to deal with the fundamental problem that stocks have collapsed. Do you think they’re near a bottom?

I think they may be.

We released a report last month, which is based on a quote from Barton Brigg’s new book, which is World’s War on Wisdom, that the bottom of a bear market is, by definition, the point of maximum bearishness.

Before the government stepped in at the end of March to reduce the daily trading band it was pretty difficult to imagine a situation where people could be more bearish than they were at that stage.

But they seem to be getting there at the moment.

I think it’s largely due to the fact that we can’t see any noticeable improvements in monetary policy and we can’t see that the government has come out to state its next objectives in terms of calming things down.

But that said, the National Assembly is in session at the moment and I imagine that the economy is pretty high on the agenda.

So when that (session) finishes in the next week or so I imagine we’ll get a dearer picture of the future development.

So you’re going to be focusing on 15 cheap stocks – it’s going to be a small-scale fund, is that right?

We’ll obviously look at the whole market, also to a lesser extent Hanoi, which doesn’t have quite the same quality.

But what we can see is that the market as a whole is on around 12-and-a-half times 2008 earnings and we can see 65 of the 150-odd stocks are on 10 times earnings or less.

So we basically start with that and filter through and get rid of the small companies, get rid of the companies whose earnings we don’t trust or the management we’re not terribly impressed with – and that should give us 15 stocks. (TN, Bloomberg)