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 February 2021.
The portfolio increased by 14.0% in February vs. an increase of 8.2% of the reference, the FTSE Vietnam Index.
Key February 2021 macroeconomic highlights:
- Since the resurgence of Covid-19 on January 28, there have been 827 cases of Covid-19 in 13 localities, including Hanoi and Ho Chi Minh City. The government has then implemented a range of aggressive measures as it previously did in 2020. As a result, the pandemic has become under control again, and businesses were able to gradually shift back to normality, apart from those in the Hai Duong province, which are today still suffering from isolation measures. On the other hand, large cities such as Ho Chi Minh City will allow to reopen most non-essential businesses such as restaurants, movie theaters, wedding centers, and tourist monuments/museums from March. Given the government’s aggressive and careful approach, we expect the outbreak to be fully under control by the end of Q1. Moreover, on February 24, the first batch of 117,600 Covid19 vaccine doses produced by the Oxford – AstraZeneca arrived in Ho Chi Minh City. The government expects to import up to 30 million doses within the first half of 2021. Vietnamese people would get the vaccine for free; however due to limited supply initially, priority will be given to the 11 priority groups.
- In February, both exports and imports fell significantly compared to the same period of last year. However, as we mentioned in our January report, this was mainly due to the timing difference of Vietnam’s Tet holiday. For the first 2M 2021, imports and exports amounted to $47.3bn (+25.9% y/y), and to $48.5bn (+23.2% y/y), respectively, generating a trade surplus of $1.2bn. This shows that i) the recent COVID-19 wave did not have any significant impact on Vietnam’s trading activities and ii) the global demand has started to recover, benefiting countries that have a deep integration into international trade chains such as Vietnam.
- The February consumer price index (CPI) increased slightly by 0.7% y/y, due to the high base effect in the same period of last year. Food & foodstuffs prices, which account for 33.6% of the total CPI basket, rose by 2.4% y/y, thanks to the steady rebuilding of pig herds across the country. Prices of the transportation group (10% weighting in the CPI) were still lower than in the same period of last year (-6.6% y/y) due to weak demand for traveling and transportation activities despite the recent rise in petroleum prices (+7.9% ytd). However, as the government is expected to further increase petroleum prices in March, we expect the transportation CPI to turn around in coming months. Also, the steady rise of other commodities prices recently such as soybean, and sugar, etc. is likely to put some upward pressure on the CPI. Although, these effects may not be immediate, we expect a moderate increase of the CPI in Q2 and maintain our forecasted CPI increase of 3.2% for 2021.
- For the first 2M 2021, FDI disbursement increased slightly by 2.0% y/y, reaching $2.5bn. As Vietnam remains a strategic destination in the China +1 area, we expect that the country will attract more FDI money inflow in coming months, especially thanks to increasing support from the government. In February, Prime Minister Nguyen Xuan Phuc has approved construction and infrastructure development of several industrial parks (IPs) across the country, boding well to receive new FDI money going forward.
- Vietnam’s Manufacturing Purchasing Managers Index (PMI) recorded 51.6 in February, compared to 51.3 in January, pointing to an overall improvement in the health of the Vietnamese manufacturing sector and the global demand. New order growth was maintained, while there were renewed increases in output, employment and purchasing.
- The Vietnamese currency (VND) has appreciated by 0.3% versus the USD YTD. We expect the State Bank of Vietnam (SBV) to continue to let the VND gradually appreciate throughout 2021 to avoid further tensions and tariffs from the U.S. Also, the VND should continue to be supported by (i) robust Foreign Direct Investment (FDI) inflow and (ii) by an increasing trade surplus as key business partners are re-opening their economies.
Stock Market highlights:
- The VN-Index as a gauge for Vietnam’s stock market rallied strongly by 10.8% in February. The recovery was broad-based as 316 stocks out of 412 stocks rose in February. With that performance, the VN-Index regained all losses from January due to the resurgence of Covid-19 in Vietnam, achieving an increase of 6.4% YTD. The real estate sector (+11.0% YTD and 25% weighting in the index) led the upturn as investors believed in the recovery of the industry in 2021. Also, the expected inflow from FDI companies will eventually support land prices and benefit property developers. Financials (+5.8% YTD and 32% weighting) also achieved good performance as the market reacted positively to some earnings releases, and thanks to the strong foreign inflow into the VN Diamond ETF, which purely invests in full-foreign-room stocks, of which banks are its top holdings. Other sector outperformed the index include Information Technology (+25.2%), Consumer discretionary (+13.1%) and Energy (+10.6%) although their contribution were minor due to small weightings.
- The combined average daily trading volume on the three bourses decreased by 17.9% to $719mn compared to the previous month, but is still comfortably higher than the $319mn averagely in 2020. Domestic individuals continued to be the main actors on the Vietnamese stock market with around 80% of the total trading volume. In January, approximately 87K new stock trading accounts were opened, which was the highest number ever. So far, the record was set in Dec 2020 with 63K new openings. The total number of stock trading accounts increased by 16.7% in all 2020.
- Foreign investors were still net sellers in February with a net outflow of $55mn, leading to total net outflow of $129mn YTD. On the one hand, the market welcomed strong foreign inflow from ETF funds, mainly into the VN Diamond fund with a net inflow of $112mn MTD and of $227mn YTD. But there was considerably outflow from almost all open-ended funds that we observe. Despite its rally in February, the market started to consolidate as it was heading towards its all-time high of 1,200 points reached in April 2018. The index also failed to break above its January 2021 high before the Covid-19 resurgence. As the market is mainly driven by domestic individual investors, it will probably be difficult to overcome these resistance levels in the short-term. Besides, the market is currently also suffering from limited margin lending and some corrections on the international markets. All in all, we consider the current consolidation as healthy. Supporting our view is the fact that most of the new market inflow is coming from new investors rather than from margin lending.
- Looking forward, we expect the market to resume its uptrend because: (i) The inflow from domestic investors will continue be solid as deposit rates remain low. (ii) The net foreign outflow should end soon as the valuation of Vietnam’s market remains attractive. By the end February, the 2020 P/E of the VN-Index was 18.2x, which was significantly lower than the valuation of other regional markets such as Thailand (26.5x), Indonesia (34.7x), Malaysia (22.1x) and the Philippines (24.0x). (iii) Some security companies are working on raising legal capital, which could increase the available lending amount to the market. As a result, the market should rise above its resistance level of 1,200 in the medium-term as Vietnamese stocks are expected to become rerated by international investors.
- At the end of February, Vietnam’s Top 100 stocks are trading at a 2021F P/E of 16.2x, at a P/B of 2.3x, and at a 2021F EPS growth of 30.5% (-8.3% in 2020). Meanwhile, the stocks on our buy recommendation list are trading at a 2021F P/E of 12.7x, at an average P/B of 2.5x, and at an EPS growth of 13.5% (+18.4% in 2020).
Invest with us:
Please download the February 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.
Featured image credit: Internet