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 2019.
Key 2019 macroeconomic highlights:
- Vietnam’s GDP grew by 7.0% in 2019. The sector I (agriculture), which is playing a minor role in the whole economy, was up by only 2.0%. Instead, Vietnam’s growth was driven by the sector II (industrials & construction, +8.9%) and by the sector III (service, +7.3%), which made up 36.3% and 38.9% respectively of the economy. With a forecasted 2020 growth rate of 6.8%, Vietnam will continue to be a bright spot in the region. The main contribution should again come from the manufacturing and construction sector, and is likely to be driven by strong FDI inflow. Service sector growth, driven by public and private consumption, is expected to remain roughly unchanged from 2019.
- In December, the General Statistics Office (GSO) announced the result of its GDP reassessment project for the 2010-2017 period. The work is based on the methodology recommended by the United Nations’ statistics agency, which employs sources of data deemed to better reflect the performance of the economy. The International Monetary Fund (IMF) has also helped Vietnam in this crucial work. According to the GSO, nominal GDP increased by an extra 25.4% per year, and the nominal 2019 GDP will be revised up to $333bn from $261bn.
- The Consumer Price Index (CPI) rose by 5.2% y/y. The strong increase was mainly due to the African swine fever (ASF) disease, which caused pork prices to soar by 50% in 2019. We estimate pork to have a 6% weight in the CPI basket. As for 2020, our forecast for CPI increase is 3.1%.
- In 2019, registered FDI reached $38.0bn, +7.2% y/y. The processing & manufacturing sector, which accounted for 67.8% of the total amount, continued to attract the most inflow. The FDI disbursement reached $20.4bn, +6.7% y/y. We believe that the trend of strong FDI inflow into the manufacturing sector will continue in 2020 as the Vietnamese economy is benefiting from the restructuring of the global supply chain.
- In currencies, the VND was up by 0.1% against the USD in 2019. We believe that the VND will continue to appreciate in 2020, albeit only slightly. The SBV needs to maintain a cautious and a balanced approach to avoid being labelled as a currency manipulator by the US government. Additionally, the government is expected to continue increasing its reserves in 2020. Vietnam’s foreign currency reserves amounted to $79bn by the end of 2019, up from $60bn at the beginning of the year. The current balance is equivalent to 3.7 times monthly imports (the regional average is 9 months). The IMF recommends Vietnam’s reserves to be within a range of $85-$125bn.
Stock Market highlights:
- The VN-Index, a market-cap weighted index of the Ho Chi Minh Stock Exchange (HSX), Vietnam’s main bourse, increased by 9.9% in 2019. The performance was mainly driven by Vietcombank (VCB, +70%), PetroVietnam Gas (GAS, + 13%) and by the three Vingroup-related companies including Vingroup (VIC, +21%), Vinhomes (VHM, +17%) and Vincom Retail (VRE, +26%). Without the contribution of these stocks, the VN-Index would have increased by 0.2%.
- The valuation of the three Vingroup-related companies is unreasonably high in our view and an investment in these companies should be considered as risky. Vingroup has excessively invested in new businesses such as retail, education, healthcare, smartphones, autos etc., but so far only its traditional business – real estate – is profitable. Vingroup recently announced to completely sell its retail business. On the other hand, the company has initiated a new investment of about $3.5 bn (20% its market cap) in the auto making business, which is likely to suffer an annual loss of about $770 mn. As for VCB, the stock has outperformed the banking sector (averagely up 8% in 2019), mainly thanks to its relatively high free float and available foreign room. Hence, despite VCB’s high valuation, it was preferred by foreign investors when allocating investments into the banking sector in Vietnam. VCB is now trading at a 2019F P/B of 4.2x compared with a P/B of 1.4x for the sector. Some other banks are trading at very attractive valuations, but there are no room for foreign investors.
- In 2019, foreign investors were net buyers of $322mn on the 3 bourses. But $250mn of this amount came from the strategic deals in the VIC by SK group. Another net foreign purchase of $54mn was in MSN by GIC. Without these transactions, foreign investors would have been net buyers of only $18mn. It should be noted that the net foreign inflow into Vietnam’s stock market was mainly driven by ETF flows. The 3 largest ETFs, which have a combined NAV of $1bn at the end of 2019, had a net inflow of $177mn, implying that other non-ETF funds have suffered from some outflows.
- The valuation gap between the large caps and other stocks has further widened in 2019. Domestic individual investors, who made up 72% of the average trading volume in 2019, usually mimic foreign investor’s activities, and these were mainly in large caps. Within the Top 100 stocks by market cap at the end of 2019, the Top 10 were trading at a 2020F P/E and at a P/B of 17.7x and of 3.2x respectively. The remaining stocks of the Top 100 were trading at much lower multiples (2020F P/E and P/B of 10.3x and of 1.4x respectively).
- At the end of 2019, Vietnam’s equity valuations are the most attractive ones in the region: Vietnam’s trailing P/E is 15.9x, while it is 16.9x, 18.9x and 19.9x for the Philippines, for Thailand and for Indonesia respectively. Our BUY recommendations carry very attractive valuations with a 2020F P/E and a P/B of 8.5x and of 1.3x respectively. The expected average 2020 EPS growth rate for our BUY-rated stocks is 31.0%.
Invest with us:
Please download the December 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: kenh14.vn