Dr. MAI Huu Minh  
Dr. MAI Huu Minh   Download : Viet Nam Fundamental Per  
IFRC Founder & CEO
Professor Paris Créteil University, France
   

While the relationship between financial ratios and firm performance has been widely researched, the empirical evidence has provided mixed results over the world. For Vietnam, the research on the subject are still few and cover a short period.

Price to Earning ratio is one of the most essential financial ratios which contributes to achieve the highest return with the lowest risk, so it has become the noticeable topic for the investors. Most researchers were attempted to explain to the phenomenon that the P/E play as empirical measurement of company performance, and how P/E can illustrate listed companies’ growth rate and market trend.

Among the main studies, The acticle “Is Forward P/E Ratio a Good Predictor for Market Returns?” ( Elizabeth Francis, January 16, 2013) shows that lower P/E ratios are typically followed by a rising market, while higher P/E ratios have predicted negative returns. Besides, the previous theoretical and empirical literatures (S. Basu, June 1977) indicated that returns on stocks with low P/E ratios tends to be larger than warranted by the underlying risks. In addition, the financial ratios as empirical predictors seem to play unique and complementary roles on stock return predictability (Sina Kheradyar, Prof. Izani Ibrahim, 2011). However, there are few to none articles or research’s been done regarding this topic in Viet Nam even though Viet Nam is a potential market that would be a lucrative market for investors .The Vietnam stock market, VN-Index increased significantly in 2013 with a growth rate of over 20% and secured the top place in Southeast Asia. Because of lacking of adequate information about this relation, the topic therefore is worthy of studying further on Vietnam stock market.

After Governance study series: Women CEO, State , Foreign ownership, IFRC continues with new topic: relation between Fundamental ratio and corporate performance, and Fundamental Ratio is the first one of the series. The purpose of this study is to examine the relation between Price to Earning Ratio and performance of about 600 companies listed on Ho chi Minh and Hanoi Stock Exchanges since 2009. By taking into account the various factors such as the market (exchange), the size (capitalization) and the sector, we provide an in-depth understanding and outstanding knowledge about Viet Nam market. The next step will extend the study period to 2000. This paper is structured as follows: first, we introduce the data description, the research method then we report empirical results to finally conclude this paper.

DATA

  • The ownership data are provided by STOXPLUS for all listed securities (Ho chi Minh and Hanoi stock exchanges) since December 2008.
  • Stock market and fundamental data are those of Intelligent Financial Research & Consulting (IFRC) of which history dates back to 2005. IFRC is going back in time to the creation of the stock exchange in Vietnam in 2000 shortly.

CONTROLLING FACTORS

The Price-to-earnings ratio (PER) is used as a quick calculation for how a company's stock is perceived by the market to be worth relative to the company's earnings.

The objective is to measure the performance of the firm sorted by value of PER and to compare to companies in the same market, size in terms of market capitalization, or activity sector.

  • Market: Ho chi Minh Stock Exchange (HOSE),  Hanoi Stock Exchange (HNX)
  • Size: Large, Medium, Small. Firms are ranked by market capitalization in a decreasing order. For example, Large Caps are those that accumulate a capitalization percentage of 80%, Mid-Caps are the ones between 80-95% and the remaining are Small Caps. Size groups are reviewed every year.
  • Sector: companies are classified into 10 sectors (Bank, Basic Material, Consumer Goods, Consumer Services,  Finance, Healthcare, Industrials, Oil & Gas, Technology, Utilities)

Concerning value of PER, the companies are sorted into three quantiles; either they belong to the "Low", "Medium" and "High" group.

ABNORMAL PERFORMANCE

To verify PER's effect in Vietnam stock market, we use abnormal performance.

For each month over the study period (December 2008 to June 2014), we calculate monthly returns of each company and controlling factor portfolio (market, size, sector and overall market).

Then, abnormal returns are calculated following each factor to measure the out (or under) performance to comparable companies. We define abnormal performances by analyzing the difference between the firm’s performance and the average group performance. If the abnormal performance is positive (negative), the company outperforms (underperforms) this group.

RESULTS

Difference between groups is tested by Student statistics. In the following tables, results are reported with different confidence interval (1-a) : * for a = 5% and ** for a = 1%.

 

Table 1: Viet Nam Fundamental PER Performance by market (2009 - 2014)


LOW MEDIUM HIGH LONG-SHORT STRATEGY
Market Nb Perf % Nb Perf % Nb Perf % Nb Perf %
HNX 7,357 14.13 * 5,760 0.91 5,665 -9.71 * 68 26.96 *
HSX 4,095 5.06 * 5,625 6.05 * 5,717 -6.79 * 68 14.50 *
All 11,452 11.15 * 11,385 3.42 * 11,382 -8.50 * 68 24.12 *

Source: IFRC Vietnam, www.ifrcresearch.com

 

Table 2: Viet Nam Fundamental PER Performance by size (2009 - 2014)


LOW MEDIUM HIGH LONG-SHORT STRATEGY
Size Nb Perf % Nb Perf % Nb Perf % Nb Perf %
LARGE CAPS 393 4.99 857 1.08 1,402 -1.46 63 23.72
MID CAPS 2,512 6.33 * 3,387 4.94 * 3,440 -9.16 * 66 13.49
SMALL CAPS 8,547 13.86 * 7,141 1.97 6,540 -10.81 * 68 30.94 *
All 11,452 11.15 * 11,385 3.42 * 11,382 -8.50 * 68 24.12 *

Source: IFRC Vietnam, www.ifrcresearch.com

 

 

Table 3: Viet Nam Fundamental PER Performance by sector (2009 - 2014)


LOW MEDIUM HIGH LONG-SHORT STRATEGY
Sector Nb Perf % Nb Perf % Nb Perf % Nb Perf %
BASIC MATERIALS 1,521 9.63 * 1,294 2.17 1,314 -7.79 67 10.97
BANKS 39 19.62 153 6.10 207 2.18 24 20.79
CONSUMER GOODS 1,388 11.63 * 1,789 5.37 1,421 -10.11 * 63 19.80 *
CONSUMER SERVICES 655 17.62 * 755 -2.77 954 -8.99 60 27.55 *
FINANCIALS 1,455 1.82 965 5.08 2,243 -1.30 64 22.16
HEALTH CARE 154 25.91 455 2.68 329 -5.73 51 20.12
INDUSTRIALS 5,390 12.47 * 4,876 2.46 3,966 -10.83 * 67 25.08 *
OIL & GAS 57 23.87 114 8.27 69 -26.97 42 75.36
TECHNOLOGY 424 4.19 284 8.34 429 -7.40 63 21.05
UTILITIES 369 13.90 * 700 2.34 450 -12.54 * 60 30.67 *
All 11,452 11.15 * 11,385 3.42 * 11,382 -8.50 * 68 24.12 *

Source: IFRC Vietnam, www.ifrcresearch.com

 

REPORT DEBT TO EQUITY

Table 4: Viet Nam Fundamental Debt to Equity Performance by market (2009 - 2014)


LOW MEDIUM HIGH LONG-SHORT STRATEGY
Market Nb Perf % Nb Perf % Nb Perf % Nb Perf %
HNX 5,069 -0.83 5,238 2.94 5,327 1.31 68 -3.66
HSX 4,787 5.07 * 4,536 0.28 4,463 -4.46 * 68 11.18
All 9,856 1.54 9,774 1.70 9,790 -0.68 68 -0.23

Source: IFRC Vietnam, www.ifrcresearch.com

 

 

Table 5: Viet Nam Fundamental Debt to Equity Performance by market (2009 - 2014)


LOW MEDIUM HIGH LONG-SHORT STRATEGY
Size Nb Perf % Nb Perf % Nb Perf % Nb Perf %
LARGE CAPS 879 8.44 * 626 0.81 572 -4.23 63 29.17 *
MID CAPS 2,776 -1.06 2,817 -0.32 2,677 -0.21 67 -3.55
SMALL CAPS 6,201 1.75 6,331 2.36 6,541 -1.22 68 -2.69
All 9,856 1.54 9,774 1.70 9,790 -0.68 68 -0.23

Source: IFRC Vietnam, www.ifrcresearch.com

 

 

Table 6: Viet Nam Fundamental Debt to Equity Performance by market (2009 - 2014)


LOW MEDIUM HIGH LONG-SHORT STRATEGY
Sector Nb Perf % Nb Perf % Nb Perf % Nb Perf %
BASIC MATERIALS 1,239 -1.99 1,082 9.84 1,547 -0.46 68 -1.44
BANKS 0 - 0 - 0 - - -
CONSUMER GOODS 1,318 8.92 1,426 1.33 1,427 -5.91 66 17.01
CONSUMER SERVICES 962 0.34 381 -9.19 319 -0.46 63 1.82
FINANCIALS 1,752 0.93 1,194 -2.21 801 1.48 64 -4.79
HEALTH CARE 391 2.64 212 -0.09 231 0.68 63 19.06
INDUSTRIALS 3,282 0.29 4,497 2.83 4,969 -0.35 67 -2.66
OIL & GAS 69 10.01 99 1.73 72 -10.95 48 23.18
TECHNOLOGY 433 -1.29 346 -6.94 110 19.52 63 -6.50
UTILITIES 410 -2.25 537 4.00 314 -1.11 60 -3.06
All 9,856 1.54 9,774 1.70 9,790 -0.68 68 -0.23

Source: IFRC Vietnam, www.ifrcresearch.com

 

REPORT STATE - ROA

Table 7: Viet Nam State Ownership ROA by market (2009 - 2014)


LOW MEDIUM HIGH
Market Nb Perf % Nb Perf % Nb Perf %
HNX 3,352 -0.34 * 1,325 0.23 1,568 0.53 *
HSX 2,837 -1.20 * 1,266 0.83 * 1,022 2.30 *
All 6,189 -0.72 * 2,591 0.58 * 2,590 1.14 *

Source: IFRC Vietnam, www.ifrcresearch.com

 

Table 8: Viet Nam State Ownership ROA by size (2009 - 2014)


LOW MEDIUM HIGH
Size Nb Perf % Nb Perf % Nb Perf %
LARGE CAPS 477 -2.37 * 161 1.60 * 284 3.07 *
MID CAPS 1,671 -1.01 * 752 1.43 * 729 0.84 *
SMALL CAPS 4,041 -0.29 * 1,678 0.07 1,577 0.67 *
All 6,189 -0.72 * 2,591 0.58 * 2,590 1.14 *

Source: IFRC Vietnam, www.ifrcresearch.com

 

Table 9: Viet Nam State Ownership ROA by sector (2009 - 2014)


LOW MEDIUM HIGH
Sector Nb Perf % Nb Perf % Nb Perf %
BASIC MATERIALS 938 -1.25 * 132 -0.45 302 4.07 *
BANKS 73 0.01 37 -0.06 23 0.07
CONSUMER GOODS 880 -0.92 * 388 -0.94 * 262 4.49 *
CONSUMER SERVICES 293 -0.35 253 1.61 * 237 -1.28 *
FINANCIALS 1,103 -0.60 * 254 2.40 * 185 0.27
HEALTH CARE 144 -1.43 * 122 -0.12 46 4.80 *
INDUSTRIALS 2,255 -0.20 1,244 0.22 1,235 0.14
OIL & GAS 2 -4.97 * 30 -0.62 48 0.59
TECHNOLOGY 285 0.12 56 2.10 * 38 -4.02 *
UTILITIES 216 -0.84 75 2.61 * 214 -0.07
All 6,189 -0.72 * 2,591 0.58 * 2,590 1.14 *

Source: IFRC Vietnam, www.ifrcresearch.com

Nb : Number of observations

% Perf : Abnormal performance over the periode

**  p_value = 1%

*   p_value = 5%

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  • Alpha

    Alpha is a coefficient that measures the performance, positive or negative, produced by an index relative to what could justify risk. A positive alpha indicates the profitability of the fund or portfolio or index is higher than its market and vice versa.

    The estimate of alpha is given by the Ordinary Least Squares in the Capital Asset Pricing Model (CAPM).

  • Base date

    The base date is the reference date for an index. It is the date from which the base value is chosen. The base date could be different to the first date.

  • Base value

    For an index, the base value is often arbitrary figure used as the initial value. Generally, it is 100 or 1,000.

  • Benchmark

    Reference Index (or Benchmark) is an index representing a market, a country, a region, ...

    It is characterized by a high number of values, variables and generally high level of representation in terms of capitalization and trading volume.

  • Beta

    The beta of a stock or an index measures the risk against a benchmark market that can be represented by a benchmark index. An index with a low risk will have low beta and vice versa. The beta is estimated by the CAPM model using ordinary least squares (OLS).

  • Blue Chip

    Blue Chip index is a composite of a small number, usually fixed to a core value, of stocks​​. It is characterized by a level of high representation in terms of market capitalization and trading volume.

  • Book-to-Price

    A ratio compares the book value of the company's assets to its price. Defined as the company's ordinary equity capital (from the most recent fiscal year end) divided by the company's market capitalisation at the review date.

  • CAB (Current account balance)

    Current account is all transactions other than those in financial and capital items. The major classifications are goods and services, income and current transfers. The focus of the BOP is on transactions (between an economy and the rest of the world) in goods, services, and income.

  • Capping

    The weight value ​​in an index could be capped to reduce their impact on the overall index performance and meet the requirements of European Directives (UCITS IV), for example.

  • Composition review

    The composition of the indices is reviewed regularly at the intervals specified in the rules. The intervals could be monthly, quarterly and semi-annually.

  • Contract Specification

    A derivative exchange designs its own products and publishes a contract specification setting out the details of the derivative contract. This will include the size or unit of trading and the underlying, maturity months, quotation and minimum price movement and value together with trading times, methods and delivery condition.

  • Futures products

    A futures contract ( or Futures as in English) is a firm delivery standard, whose characteristics are known in advance, covering:

    - A specific amount of an underlying asset precisely defined,

    - To date, called maturity

    - A given place, and traded on an organized futures exchange.

  • Options products

    An option is a derivative that establishes a contract between a buyer and a seller. The buyer of the option obtains the right, not the obligation, to buy (call) or sell (put) an underlying asset at a price fixed in advance (strike), at a time or a given date. This contract may be viewed with a speculation or insurance.

    (More detail, see Wikipedia)

  • Protective Put (Married Put)

    This strategy is a hedge against a temporary dip in the stock's value. The protective put buyer retains the upside potential of the stock, while limiting the downside risk.

  • Employment

    Proportion of a country’s population that is employed. Ages 15 and older are generally considered the working-age population.

  • LP (Population)

    Population is a World Bank estimate for mid-year population, based, in most cases, on a de facto definition, which counts all residents regardless of legal status or citizenship.

  • LUR (Unemployment rate)

    Unemployment rate can be defined by either the national definition, the ILO harmonized definition, or the OECD harmonized definition. The OECD harmonized unemployment rate gives the number of unemployed persons as a percentage of the labor force (the total number of people employed plus unemployed). [OECD Main Economic Indicators, OECD, monthly] As defined by the International Labour Organization, "unemployed workers" are those who are currently not working but are willing and able to work for pay, currently available to work, and have actively searched for work.

  • PCPI (Inflation, average consumer prices)

    Inflation is a sustainable increase in the general price level, often measured by an index of consumer prices. The rate of inflation is the percentage change in the price level in a given period.

    Data for inflation are averages for the year, not end-of-period data.

  • Alpha

    Alpha is a coefficient that measures the performance, positive or negative, produced by an index relative to what could justify risk. A positive alpha indicates the profitability of the fund or portfolio or index is higher than its market and vice versa.

    The estimate of alpha is given by the Ordinary Least Squares in the Capital Asset Pricing Model (CAPM).

  • Beta

    The beta of a stock or an index measures the risk against a benchmark market that can be represented by a benchmark index. An index with a low risk will have low beta and vice versa. The beta is estimated by the CAPM model using ordinary least squares (OLS).

  • Currency

    Indexes are sometimes calculated in currencies other than the local currency to measure the effective performance of a foreign investor buying or selling shares from another currency.

    • CODE, Currency, Country
    • AED, United Arab Emirates dirham, United Arab Emirates
    • ARS, Argentine peso, Argentina
    • AUD, Australian dollar, Australia
    • BAM, Bosnia and Herzegovina convert, Bosnia and Herzegovina
    • BDT, Bangladeshi taka, Bangladesh
    • BGN, Bulgarian lev, Bulgaria
    • BHD, Bahraini dinar, Bahrain
    • BMD, Bermudian dollar (customarily, Bermuda
    • BRL, Brazilian real, Brazil
    • BWP, Botswana pula, Botswana
    • CAD, Canadian dollar, Canada
    • CHF, Swiss franc, Switzerland
    • CLP, Chilean peso, Chile
    • CNY, Chinese yuan, China (Mainland)
    • COP, Colombian peso, Colombia
    • CRC, Costa Rican colon, Costa Rica
    • CZK, Czech koruna, Czech Republic
    • EGP, Egyptian pound, Egypt
    • EUR, Euro, 17 European Union countries
    • GBP, Pound sterling, United Kingdom
    • GHS, Ghanaian cedi, Ghana
    • HKD, Hong Kong dollar, Hong Kong Special Administrative Region
    • HRK, Croatian kuna, Croatia
    • HUF, Hungarian forint, Hungary
    • IDR, Indonesian rupiah, Indonesia
    • ILS, Israeli new sheqel, Israel
    • INR, Indian rupee, Bhutan
    • ISK, Icelandic króna, Iceland
    • JMD, Jamaican dollar, Jamaica
    • JOD, Jordanian dinar, Jordan
    • JPY, Japanese yen, Japan
    • KES, Kenyan shilling, Kenya
    • KRW, South Korean won, South Korea
    • KWD, Kuwaiti dinar, Kuwait
    • KZT, Kazakhstani tenge, Kazakhstan
    • LAK, Lao kip, Laos
    • LKR, Sri Lanka rupee, Sri Lanka
    • LVL, Latvian lats, Latvia
    • MAD, Moroccan dirham, Morocco
    • MKD, Macedonian denar, Republic of Macedonia
    • MNT, Mongolian tugrik, Mongolia
    • MUR, Mauritian rupee, Mauritius
    • MXN, Mexican peso, Mexico
    • MYR, Malaysian ringgit, Malaysia
    • NGN, Nigerian naira, Nigeria
    • NOK, Norwegian krone, Norway
    • NZD, New Zealand dollar, Cook Islands
    • OMR, Omani rial, Oman
    • PAB, Panamanian balboa, Panama
    • PEN, Peruvian nuevo sol, Peru
    • PHP, Philippine peso, Philippines
    • PKR, Pakistani rupee, Pakistan
    • PLN, Polish złoty, Poland
    • QAR, Qatari rial, Qatar
    • RON, Romanian new leu, Romania
    • RSD, Serbian dinar, Serbia
    • RUB, Russian rouble, Russia
    • SAR, Saudi riyal, Saudi Arabia
    • SEK, Swedish krona/kronor, Sweden
    • SGD, Singapore dollar, Singapore
    • THB, Thai baht, Thailand
    • TND, Tunisian dinar, Tunisia
    • TRY, Turkish lira, Turkey
    • TWD, New Taiwan dollar, Taiwan and other islands that are under the effective control of the Republic of China (ROC)
    • TZS, Tanzanian shilling, Tanzania
    • UAH, Ukrainian hryvnia, Ukraine
    • USD, United States dollar, USA
    • VND, Vietnam Dong, Vietnam

  • ETF Products

    Trackers or ETFs ( Exchange Traded Funds) are mutual funds that replicate the performance of an index. Trackers (or ETFs) work like index funds. As the peculiarity of the trackers is to be continuously traded, you can buy in cash or use SRD (Deferred Settlement Service) and sell like stocks.

  • ISIN

    An International Securities Identification Number (ISIN) uniquely identifies a security. Its structure is defined in ISO 6166

  • Book-to-Price

    A ratio compares the book value of the company's assets to its price. Defined as the company's ordinary equity capital (from the most recent fiscal year end) divided by the company's market capitalisation at the review date.

  • CAB (Current account balance)

    Current account is all transactions other than those in financial and capital items. The major classifications are goods and services, income and current transfers. The focus of the BOP is on transactions (between an economy and the rest of the world) in goods, services, and income.

  • Current ratio

    Current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. It compares a firm's current assets to its current liabilities.

    If a company's current ratio is in this range, then it generally indicates good short-term financial strength. If current liabilities exceed current assets (the current ratio is below 1), then the company may have problems meeting its short-term obligations.

  • Debt to Assets

    This ratio calculates the proportion of a company's debt to its assets.

  • Debt To Capital

    This ratio measure total debt of a company toward its total capital.

  • Debt-to-asset ratio

    An indicator of financial leverage. It tells you the percentage of total assets that were financed by creditors, liabilities, debt.

  • Dividend Yield

    Dividend yield is a term to measure how much cash flow you earn for each dollar (or other currency) invested in an equity position.

  • Growth Company

    These companies are expected to have high growth rates. Growth stocks are often characterized by favourable fundamental ratios such as steadily increasing revenue growth as well as steadily increasing earnings. Those investing in a growth company are investing on the basis of the anticipated growth of the company.

  • Interest-coverage-ratio

    The formula for the interest coverage ratio is used to measure a company's earnings relative to the amount of interest that it pays. The interest coverage ratio is considered to be a financial leverage ratio in that it analyzes one aspect of a company's financial viability regarding its debt.

  • Base date

    The base date is the reference date for an index. It is the date from which the base value is chosen. The base date could be different to the first date.

  • Base value

    For an index, the base value is often arbitrary figure used as the initial value. Generally, it is 100 or 1,000.

  • Benchmark

    Reference Index (or Benchmark) is an index representing a market, a country, a region, ...

    It is characterized by a high number of values, variables and generally high level of representation in terms of capitalization and trading volume.

  • Blue Chip

    Blue Chip index is a composite of a small number, usually fixed to a core value, of stocks​​. It is characterized by a level of high representation in terms of market capitalization and trading volume.

  • Capping

    The weight value ​​in an index could be capped to reduce their impact on the overall index performance and meet the requirements of European Directives (UCITS IV), for example.

  • Composition review

    The composition of the indices is reviewed regularly at the intervals specified in the rules. The intervals could be monthly, quarterly and semi-annually.

  • Corporate actions

    Securities transactions (or DTS), or Corporate Actions in English, describe the events involved in the life of a securities

    - Dividend payment

    - Capital increase

    - OPA...

    We can distinguish operations that affect the course or the number of titles that require an adjustment in the indices.

  • Free float

    Free float is a proportion (often expressed as a percentage) of shares that are actually traded in the market. This is a factor that’s taken into account of the weight ​​of an index, especially Blue Chip or Tradable indexes.

  • Free float banding

    The floating, in the free float of a listed company is part of actions that can effectively affect the stock market. It can be expressed in value or more frequently as a percentage of capitalization.

    It is difficult to estimate a given floating due to the absence of certain information. It is necessary to round the estimate to smooth out errors.

    The float will be rounded to 5%, 10% or more depending on the data providers. STOXX even offers a float to two decimal places.

  • Leverage Indice

    The leverage index is used to amplify the rise or fall of the market, in the same or opposite direction with the market.

    There are two main types of leverage indices:

    - The "Leverage" Indices or Bull

    - The "Short" Indices or Bear