We would like to present you our monthly Macroeconomic & Stock Market Highlights for Vietnam alongside with the monthly performance update of the TIM Vietnam Actively Managed Certificate for December 2021.
The portfolio’s NAV increased by 57.2% YTD, strongly outperforming the reference, the FTSE Vietnam Index, which is up by 34.0% YTD.
December 2021 macroeconomic highlights:
• The first quarter of “the new normal” has ended, Vietnam has come back to normal life in many areas after social distancing measures were eased. Although the number of new cases has been rising to approximately 17,000 cases per day, the number of deaths is not so significant thanks to the rapid vaccination progress. By end of December, nearly 70% of Vietnam’s population is fully vaccinated, an outstanding speed given that the vaccination process just started in August. The government is now boosting, which is expected to be completed by Q1/2022. There are currently 4mn people that already got the third dose. It seems that there were only a few cases with the Omicron variant so far, above all found from international arrivals. But these people got quarantined at the airport in order to prevent the spread of Omicron within the community. But even if Omicron will be found in public, we do not expect a strict lockdown like in Q3/2021 as international studies point out that Omicron is less harmful than Delta and that the Vietnam’s vaccination rate is sufficient. Hence, we believe the new normal life will continue and there will be no full lockdown in 2022.
• Thanks to the reopening, the economy backed to positive growth in Q4/2021 with GDP rising at a rate of 5.6% y/y, compared to a contraction in Q3. For FY2021, Vietnam’s GDP expanded at 2.6% y/y, which we believe is encouraging as the country has maintained positive growth for the second consecutive year despite COVID-19. Among the 3 main sectors, agriculture maintained solid growth of 2.9% y/y as agricultural and forestry activities operated at normal speed during the lockdown period. On the other hand, growth of the manufacturing and the service sectors was weak, only 4.3% y/y and 1.1% y/y respectively in all 2021. However, there were positive signals in Q4/2021 as manufacturing grew by 6.1% y/y (even stronger than Q4/2020’s growth of 5.6%), while services were up by 5.7% y/y (the highest quarterly growth since the pandemic started). Going into 2022, we expect the robust recovery for both manufacturing and services to continue thanks to Vietnam’s high vaccination rate. We also forecast a stronger FDI inflow post COVID-19 and a rebound in consumption demand. Hence, we project 2022F GDP to increase by 6.8-7.0% y/y.
• The December Consumer Price Index (CPI) rose by 1.9% y/y, mainly driven by transportation cost as a result of higher petroleum prices due to rising global oil prices. Fortunately, the price of food & foodstuff, which accounts for one third of the CPI basket, remained stable over the year, which kept inflation low. For 2022, we expect inflation to rise more pronounced given the rebound of consumption demand and more stimulus packages from the government. However, inflation should be below the government’s target of 4% as (1) food and pork price are expected to remain stable given the African Swine Flu is contained; (2) global commodity prices should soften thanks to eased production and logistic disruptions and as more countries are reopening their economies.
• In 2021, FDI disbursement reached $19.7bn, down slightly by 1.2% y/y. However, FDI registration continued to show a solid recovery, growing by 9.2% y/y to $31.2bn. We expect stronger FDI inflow in 2022 as travel restrictions are eased and as the vaccination rate will be close to 100%. Notably, in December, toy maker Lego and semiconductor producer Amkor Technology decided to invest over $2.6bn to Vietnam.
• December’s trade balance showed a solid surplus of $2.5bn, the strongest since October 2020. Specifically, December’s exports amounted to $34.5bn (+24.8% y/y), driven by electronic and textile products as imports of such products rose sharply in previous months. Also, international demand during year-end has accelerated significantly as new orders haven been accumulated for months during the lockdown time in Vietnam. For FY2021, Vietnam achieved a $1.8bn trade surplus and we believe this positive trend will be maintained in 2022. Vietnam’s Manufacturing Purchasing Managers Index (PMI) recorded 52.5 in December, up from 52.2 in November and signaling a third successive monthly improvement in business conditions. Retail sales increased by 4.6% m/m and by 1.1% y/y.
• Overall, we believe Vietnam’s economy is well positioned to further prosper in 2022. The current concerns of the global economy (high inflation, interest rate hikes, and high debt levels) are rather muted in Vietnam. As mentioned above, we expect inflation to remain subdued, which should keep interest rates at low levels. The ratio public debt / GDP is currently only at 48%, meaning there is significant room for fiscal stimulus in 2022 and 2023. Compared with other Emerging Market countries, Vietnam is also enjoying political stability
Stock Market highlights:
• The VN-Index as a gauge for Vietnam’s stock market inched up by 1.1% in December, offsetting all losses caused by negative news about the new coronavirus variant Omicron. The index ended the year at a level of 1,498, very closed to its all-time-high of 1,500 in November 2021, resulting in a strong gain of 39.0% YTD. All sectors reported positive returns in 2021. Consumer discretionary (+62.7%) led the upturn. The consumer power in Vietnam was resilient regardless the impact of the pandemic as investors were anticipating strong growth when the country fully re-opens. Industrials gained 61.2%, mainly due to the solid performance of logistics companies, and industrial park developers. Materials (+54.9%) also had a successful year thanks to the surge of many commodities prices. Financials (+44.8%) and real estate (+35.9%), which are the two largest sectors in terms of market cap, also posted above-average returns. Meanwhile healthcare (+22.9%), utilities (+21.6%) and energy (+14.8%) were among the laggards.
• The combined average daily trading volume on the three bourses reached $1.5bn in 2021, which was more than triple the volume of the previous year. Foreign investors remained net sellers in the amount of $209mn in December, resulting in a total net outflow of $2.7bn YTD. Thus, within two years since the pandemic outbreak, foreign investors withdrew a total of $3.5bn. On the other hand, the Vietnamese stock market witnessed rising participation of domestic investors as the total number of their trading account increased by about 50% until the end of November. In other words, the market was dominated by domestic individual investors, which contributed 85-90% of the market’s total trading volume in 2021.
• Going forward, we expect the market to continue its positive trend as the Vietnamese economy should achieve robust growth in 2022, translating into higher corporate earnings, the stock market’s most important long-term driver. Most economic activities/sectors such as infrastructure spending, the real estate market, credit demand, foreign trade, FDI inflow and tourism are expected to expand significantly.
• Furthermore, we think that foreign money will flow back into the Vietnamese stock markets especially in H2/2022. At that time, Vietnam will get closer to be classified as an emerging market (from the current status as a frontier market) thanks to the upgrade of its trading systems and of its legal procedures. Although the VN-Index continued to outperform its regional peers in 2021 such as Singapore (+3.5%), Thailand (+14.4%), Indonesia (+10.1%), Malaysia (-6.1%) and which country Philippines (-9.7%). The VN-Index’s valuation is still reasonable with a 2022F P/E of 14.1x, compared to valuations in Thailand (P/E of 17.9x), Indonesia (16.0x), Malaysia (14.9x), and the Philippines (16.6x) according to Bloomberg. Last but not least, we realize that stock performances diverged in 2021, largely as domestic investors concentrated on small and mid-cap stocks, which outperformed the somewhat neglected large caps. Such pattern offers good buying opportunities in our view as the leading companies in many sectors such as banks, real estate, construction materials should achieve strong earnings growth next year, while generally trading at attractive valuations.
• At the end of December, Vietnam’s Top 100 stocks are trading at a 2022F P/E of 16.4x, at a P/B of 2.6x, and have a 2022F EPS growth of 22.4%. Meanwhile, the stocks on our buy and hold recommendation list are trading at a 2022F P/E of 12.7x, at an average P/B of 2.4x and have an EPS growth of 37.3%.
Invest with us:
Please download the December 2021 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.