August Macroeconomic & Stock Market Highlights for Vietnam

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 2018.

Macroeconomic highlights:

• The country’s CPI rose by 0.45% m/m and by 3.98% y/y, moderating somewhat from the surge to 4.67% y/y in July. The major price increases came from foodstuffs (+1.12% m/m, because of higher pork prices), from construction materials (+0.44%, because of an increase in steel prices), and from educational fees (+0.46% as schools started, usually impacting Aug and Sep prices). Core inflation, which doesn’t include foodstuffs, transportation and government – directed fees (educational and healthcare service fees), was higher by 1.54% y/y. Based on these data, the country’s Prime Minister stated that the 2018 inflation can well be managed within the initial government target of 4.0%.

• The USDVND exchange rate has been stable in August. The midrate at the Vietcombank closed Aug at a level of VND23,300 per USD, +0.06% vs. end of July. The U.S. Dollar Index moved between 95 to 97 during the month. The surge of the USDVND exchange rate in July – besides the general USD strength – was mainly due to an internal factor: Because of ample liquidity of VNDs in the banking system ytd, the VND interbank rate has declined, and it fell below the USD rate in early July. That led to increased demand for the USD. The SBV quickly withdrew excess liquidity in VND and, at the same time, sold some USD 3.0 bn through the interbank market. As a result, the VND interbank rate was around 4.7% in August, while the USD rate was 2.8%. Demand for USD forwards has also eased after SBV’s selling.

• The external position of Vietnam remains resilient amidst the recent turmoil seen in some other emerging markets. Vietnam had positive Balance of Payments (BoP) in 2016, and 2017 and expectedly also in 2018; In 8M/2018, the trade balance  surplus amounted to USD2.8bn, Foreign Direct Investment (FDI) disbursement was USD11.2 bn (+9.2% y/y), and Foreign Indirect Investment was USD 5.2bn (+50.9% y/y). The excess VND liquidity in the banking system mentioned above was not only a result of the  strong inflow of USDs, but also of the slow disbursement of government investment spending, which left a high level of treasury deposits in the system.

• While the global headlines are currently focused on how a potential trade war may impact economic growth, Vietnam may be in a unique position to benefit at least in the medium term as global manufacturers might get more confident in putting their bases into Vietnam instead of China. In addition, Vietnam continues to strengthen its trade relationships with major economies: The EU-Vietnam Free Trade Agreement (FTA) was concluded in June and will now be sent for each party’s congressional approval. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership is also waiting for members’ ratification. Other FTA’s, which became effective in recent years, are now in their full working such as the Korea-VN FTA (Dec 2015) and the China- ASEAN FTA (since 2010, but Vietnam was given special treatment; hence the FTA became fully effective only from 2015).

• Credit growth was 8.18% y/y, the lowest increase since 2015, and yet, GDP growth of 7.08% in H1 was the highest since 2009. This is a very positive development and shows that Vietnam’s growth is less dependent on credit expansion. Thanks to these constructive macroeconomic trends, the government has room to balance between containing inflation and spur growth. However, the GDP growth estimate of 6.7% should be easily achievable.

Stock market highlights:

• The VN-Index gained 3.7% in Aug. More than half of the performance was attributed to the 3 banks: Vietcombank (VCB, +8%, 7% weight in VN-Index), Bank of Investment and Development (BID, +29%, 3% weight), and Vietinbank (CTG, +15%, 3% weight). It has been a while since there were market talks about these state-owned banks getting strategic investors, helping them to recapitalize their balance sheets. But all of a sudden, these talks emerged once again in August, leading to speculations among retail investors. While we don’t rule out such favorable scenarios, we think that current valuations are fair (2019F P/B of VCB, BID, and CTG are 2.6x, 2.1x, and 1.4x respectively). BID and CTG are less transparent than VCB with regard to their NPL exposure and less proactive in terms of new fee-income product creation. Our view is that any strategic investors, likely foreign ones, would not pay hefty premiums over market prices. Hence, further price fantasy seems limited.

• The 3 bourses combined average daily trading volume was USD 242 mn, up slightly from July. Foreign investors were net sellers to a tune of USD 52 mn worth of stocks on three bourses, compared to net sales of USD 109 mn in July. In the last week of Aug, we observed net subscriptions in ETFs, indicating the positive sentiment has come back somewhat.

• We note that the last trading day of Aug was also the data cut-off date for both the DB and the Van Eck ETF indices for their quarterly review. The results will be out next Friday for the DB ETF and in 2 weeks for the Van Eck ETF. Both ETFs will trade on 21 Sep for the first time with the new lists of constituents and their weightings.  Of note, it is estimated that both ETFs will add Vinhome (VHM). The DB ETF may delete BMP and HSG, while the Van Eck ETF may delete DPM and KBC. At the same time and because VHM has a large market cap, both ETFs will have to sell a sizeable amount (estimate of USD 90mn) of other stocks. When this happens, it will be an interesting window of opportunity for long-term value investors to pick up stocks that are sold by the ETFs.

• Global headlines are constantly sending significant headwinds these days, be it Turkey, Venezuela, or trade tension between major economies. In such an environment, we believe that it is important to stay focused on the things that matter most for our investments in Vietnamese stocks. Our positive long-term view on Vietnam remains intact, given the support from the resilient macro background, including robust demand for domestic consumption and building.

• At the end of Aug, the Top 50 stocks are trading at an average 2019F P/E and P/B of 18.6x and of 2.9x respectively. Our BUY recommendation list has an average 2019F P/E and P/B of 10.7x and of 1.6x respectively.

Invest with us:

Please download the August Factsheet for our TIM Vietnam Actively Managed Certificate. We are also offering investment advisory mandates and research services for the Vietnamese stock market. Please find more information on our product page. 

Furthermore, we offer our clients Discretionary and Investment Advisory Mandates to invest in listed Vietnamese equities. Feel free to get in touch with us at your convenience.

Featured image credit: pixabay.vn