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 December 2020.
The portfolio’s NAV increased by 7.7% in December, and up by 53.6% YTD, strongly outperforming the reference, the FTSE Vietnam Index, which is up by 18.7% YTD.
Key December 2020 macroeconomic highlights:
- 2020 GDP growth was up by 2.9% y/y, slightly higher than our forecast of 2.7% y/y. While it was the lowest GDP growth in decades, it was still a success for Vietnam as its expansion rate was among the world’s highest ones. Most other countries were much harder affected by the COVID19 pandemic and recorded negative growth. Vietnam’s agriculture sector grew by 2.7% y/y. Its contribution to total GDP has steadily decreased over time and made up less than 14.0% in 2020. The industrial and construction sector expanded by 4.0% y/y. Its contribution to total GDP has increased significantly in recent years, reaching 36.6%. We expect this trend to continue in the foreseeable future as FDI into this sector is surging due to the restructuring of global supply chains. The retail and services sector grew by 2.3% y/y, contributing 38.7% to the country’s GDP. In 2021, the economy will continue recovering, albeit gradually. We expect domestic and overseas demand to remain weak in the first half of the year due to longer-lasting damages of the pandemic on people’s income in 2020. Moreover, the vaccination process will take time. Therefore, we expect GDP to grow by 5.9% y/y, slightly lower than the government’s target of 6.5%.
- From 2021, Vietnam will apply a new GDP’s calculation method, which was announced in December 2019. The purpose is to include the country’s shadow economy, which was never captured in any statistics before. Therefore, such efforts will help to provide a more accurate picture of the Vietnamese economy. It is expected that 76,000 small enterprises and 306,000 household businesses to be included in the official statistics for the first time. Therefore, nominal GDP since 2010 will likely be revised upwards by an extra 25.4% per year, according to the General Statistics Office (GSO). While the country’s real growth rate will not be affected, the new and much higher nominal value will expand the country’s room for borrowing and spending. We estimate Vietnam’s GDP in 2020 to reach $345bn after the reassessment.
- In December, imports amounted to $27.5bn, +22.7% y/y, driven by electronic components, which were up by 48.5% y/y. We believe that Samsung’s preparation for the launch of its new flagship product (S21) in January 2021 contributed to the bulk of the surge in imports. As for exports, they also rose strongly by 17.6% y/y and reached $26.5bn, thanks to the exports of mobile phones and other electronic devices, which were up by 60.0% y/y and by 48.5% y/y, respectively. For all 2020, Vietnam’s exports amounted to $281.5bn, up by 6.5% y/y, while imports increased to $262.4bn (+3.6% y/y). Therefore, the trade surplus reached $19.1bn during this period. As the country’s efforts to develop facilities for global supply chains continue, and FDI companies keep pouring money to set up factories, we expect Vietnam’s exports to expand significantly. For instance, the world’s largest electronic component and computer manufacturer Foxconn is moving some iPad and MacBook assembly lines to Vietnam from China at the request of Apple Inc. The production lines are expected to come into operation in Vietnam in 2021.
- The December consumer price index (CPI) rose by only 0.2% y/y, which was the lowest increase during the 2016-2020 period. Food & foodstuffs prices, which account for 33.6% of the total CPI basket, rose by only 2.7% y/y, thanks to the steady rebuilding of pig herds across the country and due to the high base pork price of last year. Prices of the transportation group (10% weighting in the CPI) were still significantly lower than in the same period of last year (-11.7% y/y) due to weak demand for traveling and transportation activities, and due to low gasoline prices. As COVID-19 is likely to become under control in 2021, and as overall global and domestic demand will recover, we also expect inflation to pick up to a manageable level. We forecast the 2021 CPI to rise by 3.2%, compared with the government’s target of 4.0%.
- Vietnam’s Manufacturing Purchasing Managers Index (PMI) recorded 51.7 in December, compared to 49.9 in November, thanks to a return to growth of manufacturing output as production volumes recovered from the storm-related disruption in the previous month. Moreover, new order growth signal recovery in global demand.
- On December 16, 2020, the U.S Department of the Treasury labeled Vietnam a currency manipulator in its semiannual report on macroeconomic and foreign exchange policies. Then, On December 29, 2020, the Office of the United States Trade Representative (USTR) convened a virtual Public Hearing on Section 301 “Investigation into Vietnam’s Acts, Policies, and Practices related to Currency Valuation”. A majority of the witnesses testified in favour of Vietnam, supported by clear reasons. Meanwhile, Vietnamese government bodies have approached the issue positively and are actively working with the US on this issue. Therefore, we hope that the result of the USTR’s consideration of the testimonies will be that the US and Vietnam will find solutions via negotiations rather than any hasty punitive trade actions that could harm both countries.
- On 15 November 2020, the Regional Comprehensive Economic Partnership (RCEP) was finally signed at the ASEAN summit (hosted by Vietnam), covering ten countries of ASEAN and another five countries with whom ASEAN has pre-existing free trade agreements: Australia, China, Japan, Korea, and New Zealand. The RCEP can only become effective within 60 days after at least six ASEAN countries, and three nonASEAN countries ratify the Partnership. Although the ratification process will take some time, the signing marked a significant milestone for regional trade. The RCEP covers a market of 2.3 billion people and $26.2 trillion in global output. The treaty covers accounts for about 30 percent of the population worldwide and over a quarter of total world exports.
Stock Market highlights:
- The VN-Index as a gauge for Vietnam’s stock market continued to rally strongly by 10.6% in December, ending the year with a positive YTD performance of 17.4%. All sectors reported positive returns in 2020 despite the impact of Covid-19. Materials (+89%) led the upturn thanks to the strong performance of Hoa Phat Group (+116%). Other strong performers include Information technology (+27%), financials (+24%) and healthcare (+21%), whereas energy (+6%) and utilities (+1%) posted modest growth.
- The combined average daily trading volume on the three bourses rose by 48.4% m/m to $641mn in December, recording an all-time high record. December’s volume was about 101% higher than the YTD average of $319mn. Domestic individuals were the most active investors in the stock market, making up more than 80% of the total daily transaction value in December compared with around 70% at the beginning of the year. Mainly the decline of deposit interest rates of about 150 basis points YTD caused individual investors to redirect a large part of their assets into the stock market. In fact, the number of new stock trading accounts increased by about 90% y/y in 11M/2020.
- In the last two weeks of December, the Ho Chi Minh stock exchange (Hose) encountered technical issues as the trading systems started to operate slowly as soon as daily trading value surpassed $600mn. Hose’s management explained that this was due to the surging number of trading orders mostly from retail individual investors. In order to ease such difficulties, the Hose will apply a minimum order size of 100 shares instead of the current minimum size of 10 shares from 4 Jan 2021, freeing up the number of trading orders by 18% in order to increase the trading value by the same percentage.
- Foreign investors were still net sellers with a net outflow of $106mn in December, amounting to a total net outflow of $809mn in 2020. Excluding the foreign inflow for two significant Vinhomes transactions with a total value of $884mn, foreign investors would have been net sellers with a total outflow of $1.69bn YTD. In sum, foreign investors’ participation in the stock market fell to about 8% of the total daily transaction value in December, down from 11% at the beginning of 2020.
- Going forward, we expect the market to continue its upward trend, mainly thanks to the solid inflow from domestic investors as we expect the deposit rate to remain low. Generally, we think that the stock market will become increasingly popular for Vietnamese people, which, up until now, predominantly invested in traditional assets such as real estate, bank deposits and gold. In addition, we expect more foreign inflows to enter the Vietnamese market from 2021 onwards as frontier markets such as Vietnam should increasingly participate in the global economic recovery. We think that foreign investors will start to search for new and reliable growth engines after the Covid event, and Vietnam appears to be an attractive destination. Last be not least, although the VN-Index outperformed its regional peers in 2020, its valuation is still very attractive with a trailing P/E of 17.6x, compared to valuations in Thailand (P/E of 24.8x), Indonesia (28.0x), Malaysia (23.2x), and the Philippines (28.4x).
- At the end of December, Vietnam’s Top 100 stocks were trading at a 2021F P/E of 15.5x, at a P/B of 2.2x, and at a 2021 EPS growth of 31.0% (vs 2020 decline of 9.4%). Meanwhile, the stocks on our buy recommendation list were trading at a 2021F P/E of 11.3x, at an average P/B of 1.9x and at a 2021 EPS growth of 15.2% (vs 2020 growth of 27.7%).
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Please download the December 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.
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