Great expectations

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No big ideas today, just some things that caught my eye in the news today:

2019 FORECASTS FOR VN INDEX

Stock analysts are looking for the market to rise to 1,049, which represents a 17.5% increase year-over-year. A few comments:

2019 FORECASTS FOR VN INDEX

2019 FORECASTS FOR VN INDEX

  • These forecasts are rarely right. Last year, analysts looked for a 23% rise but the market actually fell 9%.

  • The range of estimates goes from 1,000 to 1,115 (12% to 25% increase, respectively), so there is a wide range of responses.

  • Notably, none of the estimates are for a decline, but there rarely is.

  • This is no knock against analyst in Vietnam. S&P 500 forecasts are historically just as bad. Since 2005, on there was no forecasts for the market to decline (at least based on an average forecast, some individual analysts did, I am sure).

  • The forecast for 2019 for the S&P 500 is about the same (18%), at least among analysts that revised their forecasts as of January 6 (see this article, sub required).

  • Funnily enough, both the S&P 500 and the VN Index are trading at about 14x, so neither are especially expensive. And if we were to include growth in this. The PEG for the S&P 500 is 1.9x. Vietnam’s economic growth should be close to 7%, and it is very likely that earnings growth will be higher than that, based on historical trends. If we say 10% growth is possible, then the PEG is only 1.4x, much lower than the S&P 500.

S&P 500 FORECASTS HAVE HISTORICALLY BEEN WRONG; SOURCE: MARKETWATCH

S&P 500 FORECASTS HAVE HISTORICALLY BEEN WRONG; SOURCE: MARKETWATCH

We will have to see what actually happens with the market. So much will depend on international volatility. If there is a pull back in developed markets, we will likely see investors pull out of markets, starting with the riskier frontier markets (like Vietnam) first. This is something that I saw lots in the Middle East. Frontier markets do extremely well in long bull markets when investors get comfortable with the markets and start to look for yields further and further afield. But any scare makes them pull back from these markets first.

But, Asia is hot right now, and Vietnam benefits from the US trade war with China, so maybe it will hold up better than I expect.