Looking at the stock market - buybacks = bad
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Source: Bloomberg
I was talking to a friend the other day about the Vietnamese market. I was complaining that my calls (namely Minh Phu) were not working out, despite what I thought was interesting fundamentals. He said: “well, the market is expensive.” That was at the end of October, and since then the market has flown!
As William Goldman said in a different context: No one knows anything.
Source: Bloomberg
I bring this up because the market is doing well, and looking at it overall, it isn’t so expensive. P/E is 16.8x, which isn’t cheap but doesn’t seem crazy and is well below the S&P Index’s 20.3x. My old professor, Jeremy Siegel, says that a P/E of 15x is probably reasonable given a long term return of 6.8% (using the US market - more in his book). P/B is 2.4x, much less than the S&P 500 index’s 3.4x. Price-to-sales is also much lower at 1.7x, vs S&P of 2.2x. I would think growth would be stronger for the Vietnamese companies, just because overall economic growth is faster. So if we used a P-E-G ratio, then it would look even better.
Source: Bloomberg
Looking at the charts, on a year-to-date basis, VN Index is not doing great compared to the S&P - its off about 5pp. But when we go back a full year, the indices look much closer. The S&P really fell before the end of the year, and then picked up from there. There was less volatility in the VN Index.
If we look at a 5-year trend, the VN Index is up around 18pp or 69% compared to the S&P’s 51%. So maybe its Vietnamese Stocks For the Long Run.
Since October 31, the VN Index is up 2.6%, partially driven by stock buybacks announced by Vincom Retail and Vinhomes. Both are subsidiaries of Vingroup, that we have talked about many times before.
I have a somewhat contrarian view on these buybacks: THIS IS BAD! What are these companies doing buying back stock? Vietnam is seeing a massive investment boom. The country is growing like mad. There are so many opportunities to steal export share from China, plus consumption in the country is growing as people get richer.
They should be investing this money! It could be R&D, it could be new products, it could be new stores or developments. They could be innovating or importing technology that would allow them to grow faster! It blows the mind to think that these companies couldn’t find a good return for this money. And yet, they are returning it to shareholders.
There is something to the complaint that stock markets value short-termism too much. This is a perfect case of it - the stocks are way up from the announcements, so good for them and their investments. But as someone who wants to hold stocks for a long time, this is a bad sign to me.