We would like to present you our monthly Macreoeconomic & Stock Market Highlights for Vietnam alongside with the monthly performance update of the TIM Vietnam Actively Managed Certificate for April 2020.
The portfolio’s NAV made a strong rebound in April. Year-to-date, the portfolio declined by 2.6%, out-performing the reference, FTSE Vietnam Index by 16.9%. The portfolio’s strong out-performance was thanks to our consistent and disciplined stock selection which focuses on value strategy. After the initial sentiment shock from Covid-19 news in March, stock prices of these companies recovered more strongly thanks to their resilient earnings outlook, which are barely impacted by Covid-19, because consumption of basic goods in Vietnam are still at low bases in comparison to in more developed countries.
Key April 2020 macroeconomic highlights:
- In April, Vietnam became one of the first countries in the world to ease social-distancing measures thanks to the government’s proactive and sufficient measures including the mass quarantine of tens of thousands, contact-tracing and testing to successfully contain relatively small clusters of Covid-19 outbreaks. By the end April, Vietnam has gone 12 straight days with no community transmission, keeping the total number of cases at 270, of which 222 patients have recovered, while 48 are being treated at nine medical facilities. No death was reported so far. While there are still strict measures in place, for instance to continue to quarantine all arrivals from foreign regions and to deny the entry to all foreigners,
the government relaxed the social distancing policy progressively by provinces since the 15th of April, allowing shops, street businesses and non-essential services to open. Therefore, domestic-driven business activities should start recovering in Q2.
- According to estimates by the General Statistics Office of Vietnam (GSO), Vietnam’s exports reached $19.7bn in April, -3.5% y/y. Exports of textile & garment, some of the country’s main export products, decreased by 5.8% y/y. This was due to a weaker demand in several of Vietnam’s main export markets such as the EU (-8.1% y/y). The country’s imports recorded $20.4bn this month, down by 7.9% y/y. During the 4M 2020, Vietnam’s imports amounted to $79.9 billion, +2.1% y/y, while exports were $82.9 billion, +4.7% y/y. Hence, the trade surplus amounted to $3.0 billion during this period
- The April Consumer Price Index (CPI) rose by 2.9% y/y. Prices of the food & foodstuff group increased by 11.8% y/y as pork prices remained at stubbornly high levels. On the other hand, prices of the transportation group, which contributes 9.4% to the total CPI, recorded a sharp decline of 19.6%. This was due to both i) a weak transportation demand caused by the Covid-19 virus, and ii) another petroleum price cut at the beginning of April (the total YTD price cut amounts to ~43%). Based on the current development of the global oil price, we forecast there will be more price cuts in coming months, putting more downward pressure on the CPI index. We retain our full-year inflation forecast of 2.3%.
- According to the Ministry of Planning and Investment, FDI disbursement reached $5.2bn in the 4M 2020, down by 9.6% y/y. FDI registration for new projects amounted to $6.8bn, up by 26.9% yoy, mainly thanks to a new LNG project in the Bac Lieu province with an investment value of $4.0bn.
- The Vietnamese Manufacturing Purchasing Managers Index (PMI) decreased to 32.7 in April from 41.9 in March. The manufacturing activity fell significantly amid the implementing of the social distancing measure in April.
- In April, the Vietnamese currency (VND) appreciated by 0.5% against the USD. But YTD, the VND depreciated slightly by ~1.2%. In sharp contrast, some other regional currencies experienced significantly more weakness: There was a depreciation of 9.9% for the IDR, of 8.0% for the THB, and of 6.0% for the KRW (all ytd). The relative strength of the VND was due to three factors: i) strong Foreign Direct Investment (FDI) inflow, ii) the trade surplus and iii) a historical high of foreign currency reserves (~$84bn at the end of March).
- Schools will re-open on 4 May, and travelling inter-provinces will be resumed progressively. The government stated to speed up infrastructure developments as part of the stimulus package after Covid-19. In Ho Chi Minh City, some of the major projects that see faster progress are: The Long Thanh Airport (land compensation is scheduled to finish this year and construction should start in 2021); the first metro line with underground stations in the central areas is now completed and is prepared to have test runs in Jun 2020. Besides the existing projects, the city also announced plans to start many new projects, including roads and water drainage systems.
Stock Market highlights:
- The VN-Index as a gauge for Vietnam’s stock market, strongly rebounded by 17.0% in April. The rally was broad-based as 311 out of 387 stocks were up. However, the recovery was just about half of the losses in previous months, and VN-Index is still negative by 20.6% YTD.
- The worst performing sectors so far this year were energy (-27% YTD), utilities (-26% YTD) and consumer discretionary (-25% YTD). These areas were directly affected by the low oil price and by the freezing of airlines activities. Next come financials (-22%) and real estate (-22%). The bad performance of financials and real estate sectors was exacerbated by outflows of foreign investors. Many bank and real estate stocks are large caps with a high liquidity. They earlier benefitted from strong foreign inflows despite their unreasonably high valuations, but now they are a prominent target of foreign withdrawing. On the other hand, some outperforming sectors were healthcare (-1%) and materials (-6%).
- The combined average trading volume on the three bourses $ 223 mn in April, nearly unchanged compared to previous month. After the stock markets fell sharply in March, sentiment turned around, helping to support the strong recovery in April. But the rally faded towards the end of the month as investors were realizing short-term gains. In our view, it will be hard to keep a sustainable and broad-based rally in the shorter-term as the inflow quickly dried out when the VN-Index reached higher levels. What’s more, domestic investors are currently the only drivers of the market, while foreign investors were still the net sellers in April with a total amount of $ 304mn ($750 million YTD).
- Q1 financial results are coming out now. From the top 100 stocks by market cap, 43 companies had positive earnings growth in Q1/2019, while 57 companies suffered negative profit growth. We like to add that i) the first quarter is usually the slowest period of the year and that ii) the operating earnings of the first three months may not fully reflect the impact from the Covid-19 as most of the social distancing measure were implemented only in April.
- Money outflow from emerging and frontier markets may continue in the coming months. As for Vietnam, while speculation of domestic investors might continue to subside, there were some investment activities made by insiders/ managers. That shows their confidence in the companies, whose stock prices may have fallen more than what is justified by the impacts of Covid-19 on businesses. We have consistently followed a value investment strategy during the last years, which has proved to be effective, especially during a crisis like now. Before this crisis, our BUY recommendation included mostly mid-small cap stocks as valuations of large cap stocks were driven up to extraordinary high levels. Now, after the negative performance in the last two months, some large caps have become our investment targets. Most of our favorite stocks are offering products/services for the domestic market. In general, the level of consumption in Vietnam is still quite low, offering a huge potential. In addition, consumption here is very resilient. As an example, Vinamilk was still reporting single-digit sales growth in Vietnam in Q1, while dairy consumption in all developed countries went down substantially during this time. Plastic pipe producer Binh Minh Plastic reported double digit domestic sales growth in Q1. Having said that, the current lower stock prices may offer long-term investors an excellent opportunity to invest in these companies at reasonable prices.
- Our recommendations have some common characteristics: (i) serving the domestic market, stable demand regardless of the Covid-19 (consumer staples, health care), benefiting from possible government stimulus (construction materials). (ii) having a solid financial position with a low debt ratio. (iii) market leaders, which can gain more market share during the crisis as weaker companies have to tighten their business or may even be forced to leave the market.
- By the end of March, the top 100 stocks were trading at a 2020F P/E of 13.6x and at a P/B of 1.7x. Our BUY recommendations have a rather undemanding valuation with a 2020F P/E and at a P/B of 8.6x and of 1.5x respectively.
Invest with us:
Please download the April 2020 Factsheet for our TIM Vietnam Actively Managed Certificate. We are also offering investment advisory mandates and research services for the Vietnamese stock market. Furthermore, we offer our clients Discretionary and Investment Advisory Mandates for the purpose of investing in listed Vietnamese equities.
Featured image credit: Internet