Good morning, Vietnam. Ho Chi Minh’s benchmark index rallied above 20 per cent in the past six weeks, four times better than the MSCI Asia ex-Japan. Until last year, it had underperformed for the past five. Why the turnround?

There is good reason for the wake-up call. Inflation has fallen to about 7 per cent, a long way down from 2011 when it peaked at 23 per cent. The central bank has cut interest rates six times in the past 12 months. That should boost credit, which had slowed for two straight years, and help gross domestic product growth recover to 5.5 per cent this year from 5.2 per cent in 2012. The dong has also stabilised against the dollar, having weakened for three years. And Vietnam will finally eke out a current account surplus for last year – the first time since 2005.

Still, for all that, the rally puts the Ho Chi Minh index on only 10.5 times forward earnings, close to the average for the past two years. There is good reason for it to remain range bound. The financial sector, which includes Vietinbank, makes up a sixth of the index. Yet bad loans, particularly to the property sector, have been mounting. Vietnam’s ability to muddle through has so far averted a banking crisis, but the sector has been weakened by years of unproductive lending to the state sector. There is talk of better support for private enterprise, but Hanoi’s policy making is often capricious.