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 January 2021.
The portfolio increased by 0.7% in January vs. a decline of 1.7% of the reference, the FTSE Vietnam Index.
Key January 2021 macroeconomic highlights:
- On 26 January, the 13th National Congress of the Communist Party of Vietnam (CPV) started in the capital city of Hanoi. The nine-day event will select new leaders and will shape policy for the next five years and beyond. It will also highlight Vietnam’s success in containing COVID-19, that has helped its economy to outperform much of Asia in the past year; Vietnam is targeting an average GDP growth of 7 percent p.a. in the next five years.
- As we mentioned in our email to investors on 28 January, Vietnam’s Ministry of Health (MOH) reported a new case of COVID-19 in the Northern province of Hai Duong. This is the first time Vietnam reports a case of COVID-19 caused by the strain B117, which was originally detected in the UK. This ended 55 consecutive days without locally transmitted cases. Since then, Vietnam initiated another aggressive contact-tracing process, quarantining all people who were in close contact with the patient. Overall, given that Vietnam’s government has a very good track record of containing the spread of the coronavirus, this new case of COVID-19 should not pose a risk of widespread infection. We expect the new wave to be over before the Tet holiday.
- In January, both imports and exports expanded significantly compared to the same period of last year. But this was mainly due to the timing difference of Vietnam’s Tet holiday, which was in January last year, causing most economic activities to stop. Therefore, only the two-month result will provide a more accurate picture of the country’s trading activities. In January 2021, imports and exports amounted to $26.4bn (+41.0% y/y), and to $27.7bn (+50.5% y/y), respectively, generating a trade surplus of $1.3bn.
- The January consumer price index (CPI) declined slightly by 1.0% 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 only 1.0% y/y, thanks to the steady rebuilding of pig herds across the country. The second largest group in the CPI basket, accommodation, and construction materials (18.8% of CPI basket), fell by 3.6% y/y as main cities implemented an electricity price reduction program to support businesses that were affected by the COVID-19 outbreak. The electricity price, which is estimated to contribute 3.3% to the overall CPI basket, was cut by 16.9% m/m on average. Prices of the transportation group (10% weighting in the CPI) were still significantly lower than in the same period of last year (-10.3% y/y) due to weak demand for traveling and transportation activities. But rising petroleum prices (+5.6% ytd) will support the transportation CPI in coming months. As COVID-19 is likely to become under control in 2021, and as overall global and domestic demand will recover, we expect inflation to pick up to a manageable level. We forecast the 2021 CPI to rise by 3.2%.
- In January 2021, FDI disbursement reached $1.5bn, down slightly by 5.6% y/y due to travel restrictions caused by COVID-19. We expect FDI money inflow to accelerate in coming months as Vietnam remains a favorite destination for companies from different sectors to move their supply chains out of China. In January, there were some notable FDI projects such as the one from Foxconn, a key partner and supplier to Apple, which has invested $270 million to build a new factory in the Bac Giang province to expand its production of iPad and smart speakers’ series. Also, during January the U.S. chipmaker Intel announced a plan to inject $475 million into its Vietnamese division to manufacture 5G products and core processors.
- Vietnam’s Manufacturing Purchasing Managers Index (PMI) recorded 51.3 in January, compared to 51.7 in December, 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 continued recovery in global demand.
- The Vietnamese currency (VND) appreciated by 0.1% versus the USD in January. 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 declined by 4.0% in January. Looking beneath the headline index, 239 out of 407 stocks declined.
- The VN-Index started the month at 1,114 points and rose as high as 1,192 points – nearly reaching the all-time high of around 1,210 – before experiencing unprecedented volatility. Between 19 January to 28 January, the VN-Index experienced three large selloffs, with the market dropping by 5.1% on 19 January, 3.4% on 27 January, and 6.7% on 28 January. The declines were due to a combination of factors, including (1) the lack of available room for further margin lending as some securities firms reached the upper cap, (2) the tendency of realizing profit before Tet, Vietnam’s longest public holiday, which will take place in mid-Feb and will last for 10 days, and (3) Vietnam’s first community-transmitted Covid-19 case in almost 2 months, which magnified investors’ worries about possible margin call triggers. However, the VN-Index rebounded strongly by 3.2% in the last trading day of January, which eased concerns over margin calls for the time being.
- The combined average daily trading volume on the three bourses advanced by 37.2% m/m to $876mn in January (following an already strong 48.4% m/m increase in December). Foreign investors were net sellers with a net outflow of $74mn, significantly lower than the $106mn outflow in December (-30.7% m/m). Notably, foreign investors were net buyers in the last 3 trading days, taking advantage of the panic selling amongst local investors.
- We believe that investors overreacted, as demonstrated by the fact that all stocks fell to their floor prices on 28 January – the VN-Index drop of 6.7% on that day was the biggest historical decline, regardless of fundamental factors and business performance. We also observe that the margin lending level of several major brokers declined significantly from the peak. Though the poor sentiment may continue in the short-term, we think that money will gradually withdraw from speculative stocks and will be redirected to stocks of fundamentally sound companies.
- Looking beyond the current difficult trading period, we expect the market to pick up momentum again due to (1) the solid inflow into Vietnam’s stock market from domestic investors as deposit rates will continue to be low, and as gold and real estate as investment channels are unlikely to provide high returns; (2) the potential interest in Vietnam’s market from foreign investors due to its still attractive valuation and better performance compared to regional peers; (3) many companies/sectors resiliency despite challenging business environments due to Covid-19 in 2020 and investors’ belief in continued good performance. Therefore, we consider any weakness as a good opportunity to buy solid fundamental stocks.
- At the end of January, Vietnam’s Top 100 stocks were trading at a 2021F P/E of 14.8x, at a P/B of 2.1x, and at a 2021F EPS growth of 30.9% (- 9.4% in 2020). Meanwhile, the stocks on our buy recommendation list are trading at a 2021F P/E of 11.9x, at an average P/B of 2.3x, and at an EPS growth of 14.1% (24.0% in 2020).
Invest with us:
Please download the January 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