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 July 2020.
Year-to-date, the portfolio is up by 5.8%, outperforming the reference, which fell by 13.5%.
Key July 2020 macroeconomic highlights:
- There have been 93 community infections since July 24, following a three-month period with no Covid-19 cases. By the end of the month, the total number of cases in Vietnam amounted to 509, including 276 imported cases, which have been quarantined upon their arrivals. 369 people have recovered from the virus. Vietnam also recorded the first casualty connected to Covid-19, though this patient was already in a critical condition before the Covid-19 infection. The government is currently trying to contain the spread by conducting tests for people traveling from Da Nang city since the 1 July. Other aggressive measures include a complete lockdown of Da Nang city, and a soft lockdown in Ha Noi and in Ho Chi Minh city, i.e. banning unessential businesses such as bars, recreational activities that can gather more than 30 people. Recently, many people have returned from their summer vacation in Da Nang to Ha Noi and Ho Chi Minh city. Although the second Covid-19 outbreak was unpredictable, we expect the situation to be under control rather soon as both the government and Vietnamese people are doing everything that they can to contain a further spread of Covid-19.
- The consumer price index (CPI) rose by 3.4% y/y in July. Prices of the food & foodstuffs group (36% weighting in the CPI) rose by 11.9% y/y as hog prices remained high at ~VND90/kg across the country. Prices of the transportation group (9% weighting in the CPI) were still significantly lower than in this period of last year (-14.4% y/y). But, in July, prices of this group increased by 3.9% m/m, thanks to the increase of petroleum prices of 14.1% during the month and thanks to higher demand for domestic travel during the summer holiday period. However, after two consecutive months of increasing petroleum prices, we expect the Ministry of Industry and Trade to only adjust the prices slightly upward in August to help control inflation. We also expect to see less demand for travelling and transportation activities, mainly due to the Covid-19 outbreak, resulting in lower prices once again. Overall, we maintain our full-year inflation forecast of less than 3.0%.
- The General Statistics Office of Vietnam (GSO) estimates that during the first 7M of 2020, Vietnam’s imports amounted to $139.3 billion, -3.0% y/y, while exports were $145.8 billion, +0.2% y/y. Hence, the trade surplus reached $6.5 billion during this period. In July, Vietnam’s exports reached $23.0bn, which was unchanged compared with the same period of last year. On the other hand, the country’s imports recorded $22.0bn this month, down by 2.9% y/y. Trading activities of the foreign-direct-investment (FDI) companies have stalled, whose exports and imports declined by 5.7% y/y and by 6.2% y/y respectively. On the other hand, trading activities of non-FDI companies still recorded a solid growth, with its export and import grew by 13.5% y/y and 1.5% y/y respectively in 7M/2020.
- The Vietnam Manufacturing Purchasing Managers Index (PMI) recorded 47.6 in July, down from 51.1 in June. The survey’s respondents indicated the Covid-19 pandemic continued to impact their operations. Both the intermediate and investment goods sectors reported fall in output, while consumer goods production increased.
- According to the Ministry of Planning and Investment, FDI disbursement reached $10.1bn in the 7M 2020, down by 4.1% y/y. However, FDI disbursement in July was up by 1.4% y/y, reaching $1.5bn. Also, July’s total registered FDI reached $3.1bn, up by 79.8% y/y thanks to $774mn additional capital invested in the Korean real estate project in Hanoi Westlake.
- Despite the slowdown in the FDI flow and in trade, the Vietnamese currency (VND) continued to strengthen. In July, the VND appreciated by 0.1% against the USD, narrowing the YTD depreciation to only about 0.1%. This is partially thanks to the general weakness of the USD as the U.S. Dollar Index fell by 4.5% in July. We maintain our forecast that the VND will remain relatively firm for the time being, at least until the end of the year.
- The EU-Vietnam Free Trade Agreement (EVFTA) will become effective on 1 August. The agreement will help to improve trade activities between both partners as most import tariff lines will gradually be reduced to zero.
Stock Market highlights:
- The VN-Index as a gauge for Vietnam’s stock market decreased by 2.7% in July. The decline was broad-based as 250 out of 382 stocks were down and 9 out of 11 sectors delivered negative performance. The negative result in July has contributed to a negative YTD performance of the VN-Index (-16.1%). In July, Communication Services (-9.7%), Consumer Discretionary (-7.3%), and Energy (-5.5%) were the laggards, while Healthcare (+0.5%) and Real Estate (+0.3%) were the only sectors with marginal positive returns.
- The combined average daily trading volume on the three bourses was about 4.8% below the YTD average and amounted to $227.9mn in July. Trading volume continued to be dominated by domestic individual investors, who contributed around 80% to market activities. Notably, volume has surged in the days following July 24, when the first community-transmitted Covid-19 case in Vietnam after three months was reported. The average trading volume across the three bourses between July 24-31 was $265.7mn, 16.6% higher than the July average. Foreign investors turned around to become net buyers during that period as their net purchases amounted to $44.7mn, vs. July’s net foreign sales of $23.7mn.
- Going forward, regarding the containment of Covid-19, we are confident that the Vietnamese government will introduce appropriate measures to contain the virus. Back in April, Vietnam successfully contained a Covid-19 hotspot in Hanoi and monitored approximately 9,000 people who were related to the case. The current situation is quite similar and should be under control thanks to the precaution of the authorities and the people as well as the experience of healthcare personnel and facilities in dealing with Covid-19. As for global Covid-19 vaccine progress, the majority of phase 3 testing (large-scale tests on human) will take place in late Q3/early Q4.
- In the coming weeks, the stock market may continue to experience weak investor sentiments and could possibly undergo a correction as a result. However, in our opinion, the possible correction should be rather short-lived and thus offers good buying opportunities due to (1) increasing money flow from domestic investors into the stock market as deposit interest rates have dropped significantly; (2) currently low margin lending levels; (3) strong likelihood that the government will be able to successfully contain of the current Covid-19 spreading; (4) several companies posted sound earnings despite the challenging business environment in H1/2020, displaying encouraging signs of resiliency against uncertainties
posed by Covid-19.
- With the second wave of Covid-19 sweeping across Asia, North America, and Europe, corporate earnings recovery in Q3 will likely be weaker than initially expected in our view. However, there will still exist certain companies whose stocks can outperform the general market. Such companies are likely those with strong domestic market power that can also gain further market share through their abilities to benefit from lower input prices and increased capacities.
- At the end of July, the top 100 stocks were trading at a 2020F P/E of 14.5x, at a P/B of 1.8x and at a 2020 EPS growth of -8.0%. Meanwhile, the stocks of our buy recommendation list are trading at a 2020F P/E of 8.9x and on an average P/B of 1.6x, 2020 EPS growth is expected to amount to 16.5%.
Invest with us:
Please download the July 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.
Featured image credit: Internet