We have put together a DuPont analysis of the return on equity (ROE) of Vietnamese companies. The DuPont model provides a framework to analyse the ROE by breaking it down into five components, as given below: ROE = Profit margin × Asset turnover × (1-Interest burden) × (1-Tax burden) × Leverage

Our universe includes most of the Ho Chi Minh Stock Index constituents excluding the financials sector and companies with patchy data. We have used 163 companies for 2007, 202 for 2008 and 220 for 2009, which we believe are still quite representative of the general trend.

The most remarkable finding of our analysis is that Vietnamese companies are delivering return on equity (ROE) that are as good as or better than its regional peers. In 2006, Vietnam's ROE was 21.1%, considerably higher than the Asia ex Japan average of 17.3%. In the following year, Vietnamese companies generated an ROE of 17.6%, almost equal to the Asia ex Japan average of 17.8%. In 2008, Vietnam ROE stood at 13.3%, higher than the regional average of 12.5%, while 2009 saw the ROE rising substantially to 18.6% from 13.3% in Vietnam, whereas the average ROE of the region remained at 13.5%. In 2009, the Technology sector had the highest ROE (30.8%) mainly because of higher margins, while Energy and Industrials recorded the lowest ROE of 14%, which still beat the Asia ex Japan average of these sectors.

Eoin Treacy's view Vietnam has been off the radar of many Asia focused investors for much of the last two years and the market has lagged its regional and international counterparts. High inflation, a lack of faith in the political structure and the depreciating Dong have all contributed to the stock market's underperformance and remain challenges today. Vietnam has become one of the largest importers of gold in part because citizens have such little faith in the domestic currency.

The VN Index bottomed in February 2009 and has been ranging above 400 for the last 19 months and counting. It found support at the lower side three weeks ago and broke upwards to a new three-month high this week. A sustained move below 450 would be required to question scope for some further upside. A sustained move above 515 would break the yearlong progression of lower major rally highs and likely signal a return to medium-term demand dominance.

A Vietnamese delegate at the recent Chart Seminar in London indicated that he was almost completely out of his domestic market, citing government corruption and the weakness of the currency as factors in his decision. While these are serious concerns, if widely held, they also suggest that domestic ownership is at a low ebb and has significant potential to rise. The point made in the above report that the periods following Party National Congresses are favourable for stock markets is interesting since the next one is in January. This suggests that Vietnam could well be an interesting area to watch over coming months particularly if the chart action remains constructive.

There are a number of Vietnam funds in the Chart Library and we strongly suggest doing one's own due diligence before investing.

The Vietnam Opportunities Fund found support at the lower side of the 18-month range in June and rallied to test the 2009 high near $2 in November. It consolidated in that region for the last month and is retesting $2 at present. A sustained move below $1.75 would be required to question potential for a successful upward break. Vietnam Holdings Fund has a reasonably similar pattern.

Vinaland, which invests primarily in property, rallied impressively from the March 1009 lows and has been ranging below $1 since September 2009. It is currently rallying towards that level and a sustained move below 90¢ would be required to question scope for a successful upward break.

Market Vectors Vietnam ETF invests in companies with an interest in Vietnam as well as foreign listings of Vietnamese companies. It has rallied impressively over the last month and has broken the medium-term progression of lower rally highs. While somewhat overbought in the short-term a sustained move below $24 would be required to question medium-term upside potential.

The db x-trackers FTSE Vietnam ETF found support in the region of 2000p three weeks ago and has rallied to test the short-term progression of lower rally highs. A sustained move below the recent low would be required to question scope for some additional upside.

There are a number of additional Vietnam funds in the Chart Library.