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 August 2020.
The portfolio increased by 12.9% in August vs an increase of 7.4% of the reference, the FTSE Vietnam Index. Year-to-date, the portfolio is up by 19.5%, strongly outperforming the reference, which decreased by 7.1%.
Key August 2020 macroeconomic highlights:
- It has been one month since Vietnam reported the second wave of the Covid-19 infection. Overall, Vietnam has contained the outbreak very effectively, with minimal social distancing measures needed. The number of new infections per day has decreased significantly in the past week and there was no new community transmission case in the last two days of August. The situation in the two red zones, i.e. in Da Nang and in Hai Duong, seems to be under control. Tracking and controlling measures have been implemented extremely well: more than 70,000 people, who have been in contact with identified infected patients, have to stay in quarantine. The government has also been transparent and timely in delivering information on the outbreak (via text messages, apps, and the official website), and that has been the key to maintain public confidence. Since the beginning of the pandemic, Vietnam recorded 1,044 infections. 34 of these people died, and there were 707 recovered patients.
- The August consumer price index (CPI) increased by 3.2% y/y, which was slightly lower than July’s increase. Prices of the food & foodstuffs group (36% weighting in the CPI) rose by 11.8% y/y as hog prices remained elevated in most of August; but they have declined significantly towards the end of the month to below VND80K/kg from VND 90K/kg at the beginning of August. We expect hog prices to continue their downtrend towards year-end thanks to increasing supply from imports of both frozen pork and live pigs as well as thanks to an increase of domestic pig herds (~82% pre-ASF level). Prices of the transportation group (9% weighting in the CPI) were still significantly lower than in the same period of last year (-13.5% y/y).The Ministry of Industry and Trade only adjusted the prices slightly (~1% m/m) upward in August to help control inflation. As the demand for traveling and transportation activities will remain weak due to Covid-19 concerns, we expect the transportation CPI to remain well under control at least until October. Our full-year inflation forecast remains at less than 3.0%.
- In the 8M 2020, FDI disbursement reached $11.4bn, down by 5.1% y/y, according to the Ministry of Planning and Investment. The decline was due to the COVID-19 outbreak that slowed down the disbursement process. However, we retain our view that Vietnam is still a favorite destination for foreign companies in the longer run, given the fact that China is moving up in the production value chain. Despite the pandemic, the newly registered FDI amount for 8M 2020 reached $9.7bn, +6.6% y/y.
- Despite the slowing in the FDI flows, the Vietnamese currency (VND) continued to stay relatively strong. YTD the VND is unchanged against the USD. In the investigation on anti-subsidy of Vietnam’s light vehicle tire, the U.S. Treasury determined that Vietnam deliberately undervalued its currency (by 4.7% against the USD in 2019) to gain competitive advantages on export activities. Such conclusion from the U.S. Treasury could be seen as an early warning that it may subsequently label Vietnam as a currency manipulator in its next currency manipulation assessment in October. However, we keep our view that a worst-case scenario, where the US will label Vietnam as a currency manipulator in October, is highly unlikely because: (1) Vietnam has shown great efforts to reduce its trade surplus; we believe that the recent increase in the trade surplus is only temporary and that the surplus will gradually narrow when Covid-19 is under control globally; (2) in our view, the State Bank of Vietnam’s (SBV) policy to strengthen its foreign currency reserves was necessary as Vietnam started at a rather low base: Vietnam’s foreign reserves by the end of July were only $86bn, which was equivalent to 4.3 months of the import value (just slightly more than the minimum of 3 months recommended by the IMF) and far below the regional average of 10.9 months; and (3) in order to counter the increasingly aggressive stance of China in the South China Sea, Vietnam may lean towards the U.S. to get more support, and thus will soon find reasonable approaches to address U.S.’s concerns over FX rates. Therefore, we maintain our forecast that the VND will remain relatively firm at least until the end of the year.
- During the first 8M of 2020, Vietnam’s exports amounted to $174.1 billion, +1.6% y/y, while imports came to $162.2 billion, -3.0% y/y, according to the General Statistics Office of Vietnam (GSO). Therefore, the trade surplus reached $11.9 billion during this period. In August, Vietnam’s imports reached $23.0bn, + 2.8% y/y, reflecting a sign of recovery of new orders, pointing to increasing global demand in coming months. August exports amounted to $26.5bn, +2.5% y/y, driven by shipments of Samsung flagship products, i.e. Note 20. For the 8M 2020, the US remained Vietnam’s largest trading partner. Exports to the US reached 46.7bn, +19.0% y/y, while imports from this country stayed unchanged at $9.4bn.
This created a significant surge of Vietnam’s trade surplus with the US ($37.3bn in 8M/2020, +27.4% y/y), which was also one of the reasons for the US Treasury’s action that we mentioned above. Also, this might raise concerns about the transshipment issue, which could trigger the US to put a tariff on Vietnamese products. However, we also think this scenario is quite unlikely. In the 7M 2020, exports of laptop and electronic products to the US rose by 86.6% y/y, reaching $5.3bn, thanks to the increasingly popular working-from-home trend. Imports of laptop and electrical parts from China amounted to $2.8bn, +20.0% y/y. Please note that Vietnam still relies on imports for its manufacturing sector, including the production of laptops and electrical products. Therefore, the majority of these imports from China are used for assembling activities.
- The Vietnam Manufacturing Purchasing Managers Index (PMI) recorded 45.7 in August, down from 47.6 in July due to the second outbreak of the COVID-19 disease. However, as the country is more prepared than in the first wave, we remain positive that the situation will be under control. Therefore, we think that the PMI will stay above the 50 mark in the coming months.
Stock Market highlights:
- The VN-Index as a gauge for Vietnam’s stock market rallied by 10.5% in August. The increase was broad-based as 337 out of 383 stocks were up. However, the index is still posting a negative performance of -7.3% YTD. All sectors reported positive returns in August. Energy (+24.1%) and consumer discretionary (+18.4%) led the upturn, whereas real estate (+3.2%) and healthcare (+9.6%) lagged.
- The combined average daily trading volume on the three bourses advanced significantly by 19.3% m/m to $271mn in August, which was about 10% higher than the YTD average. In late August, the market was excited by news that a Taiwan fund, namely the CTBC Vietnam Equity Fund, managed by CTBC Investments, raised $160.0mn to invest in Vietnam, mostly in large-cap stocks and ETFs. Investors’ confidence rose sharply as they believed that foreign money might be redirected to Vietnam after a long period of outflows. However, foreign investors were still the net sellers in August with a net outflow of $147.6mn, amounting to a YTD net outflow of $313.1mn. The market continued to be dominated by domestic individual investors, who contributed around 80% to the market’s total trading volume. This goes to show that news on foreign inflows might only have created short-term exuberance on domestic investors. The market needs real buying from foreign investors to see a more longterm recovery, but this has not set in so far.
- The Vietnamese government’s appropriate and efficient measures to contain the second wave of Covid-19 have certainly contributed to the current market rally. As a result, The VN-Index recovered all losses in July, surpassing the level from before the first reported case of the second wave of Covid-19 on 24 July. The government now has gained more experience and capability in handling the pandemic, which also helped boosting investors’ confidence. In other words: the market has already digested and moved on from news about the second wave of Covid-19.
- Going forward, the market will continue to face headwinds due to the prolonged subdued global macroeconomic environment that may affect Vietnam’s economy via import/export activities. However, the weak macro data should not surprise the stock market, and we also do not expect any sharp decline for the time being due to several supporting factors. Firstly, the Vietnam’s stock market is enjoying rising popularity as an investment channel as deposit interest rates have dropped drastically recently, while property rental yield has also declined because less foreigners are visiting Vietnam and domestic companies now have less demand for property leasing as they cut down on costs. In addition, as inflation is now under control, the government may implement measures such as rate reductions and investment spending to support the economy, boosting corporate earnings. In fact, the 12-month deposit rate has retreated to 5.9% in August from 7.0% in Dec 2019. Lastly, several companies posted sound earnings in H1/2020, displaying encouraging signs of resiliency against uncertainties posed by Covid-19.
- At the end of August, the Top 100 stocks were trading at a 2020F P/E of 16.1x, at a P/B of 2.0x and at a 2020 EPS decline of 8.4%. Meanwhile, the stocks of our buy recommendation list are trading at a 2020F P/E of 10.1x and on an average P/B of 1.5x; 2020 EPS growth is expected to amount to 21.2%.
Invest with us:
Please download the August 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