July 2021 Macroeconomic & Stock Market Highlights for Vietnam

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 July 2021.

July 2021 macroeconomic highlights:
• The 4th wave of COVID-19 got more serious in July, which added 116,132 cases and brought the total number of cases to nearly 130,000. The majority of them occurred in the Southern area, especially in Ho Chi Minh City. In response, the government has applied strict social distancing measures for all Southern cities; people are asked to stay home in the evenings and all non-necessary delivery has to stop. In late July, Hanoi applied similar measures to prevent a potential outbreak. In fact, such strict social distancing measures seem to work as we already start to see the numbers of new cases in Ho Chi Minh city to cool down, while the number of recovered patients doubled in recent days to over 4,000 people.

• Although the number of new cases in other cities are still rising, we think the current outbreak will soon be under control. Back in May, the Vietnamese government has successfully contained the outbreak of the delta variant in two provinces in the North of Vietnam. With experience and prompt measures, Vietnam is very likely to suppress the current covid outbreak once again. Accordingly, we think all social distancing measures will be eased or even lifted by the end of August.

• In July, Vietnam received 12.8mn doses of vaccine from AstraZenaca, Moderna and Pfizer. The vaccination progress is speeding up, especially in Ho Chi Minh city, where nearly 11% of the population are vaccinated. In the whole country, 4.4mn people received at least 1 dose of vaccine, equivalent to 4.4% of Vietnam’s population.

• Foreign trade activities remained dynamic in July as exports grew by 8.4% y/y to $27.0bn, while imports advanced by 59.9% y/y to 28.7bn. As for 7M/2021, exports and imports increased by 25.5% y/y to $185.3bn and by 35.3% y/y to $188.0bn respectively. This is equivalent to a trade deficit of $2.7bn vs a trade surplus of $8.7bn in 7M/2020. July’s rather weak export growth was due to the social distancing policy that was applied in the Southern provinces with its numerous industrial parks such as Binh Duong or Dong Nai. However, since imports were still growing strongly, we think that exports will recover in coming months.

• The July Consumer Price Index (CPI) rose by 2.6% y/y, mainly driven by accommodation & construction materials as well as by transportation. The accommodation & construction materials index rose by 4.4% y/y due to rising global commodity prices, which also translated into higher domestic construction materials prices. The transportation index surged by 13.8% y/y because: (1) of its low base in 2020; and (2) of rising domestic petroleum prices (+40.3% y/y). Overall, the rise in inflation is in line with our expectation.

• According to the Ministry of Plan & Investment, FDI disbursement grew by 3.8% y/y to $10.5bn in 7M/2021. Manufacturing accounted for 71.8% of total disbursement. Next were the real estate and the energy sectors, which accounted for 12.3% and for 9.4% respectively. According to Kinh Bac City (KBC), a leading industrial park company, the firm continued to receive lots of interest from FDI firms to open factories in Vietnam, even during the current challenging times. As a result, we believe FDI disbursement will accelerate after COVID-19 is contained.

• Vietnam’s Manufacturing Purchasing Managers Index (PMI) recorded 45.1 in July, compared to 44.1 in June. Although the PMI number of July was weak, it is much better than the low of April 2020 of 32.7 during the strict social distancing last year. This shows that manufacturing activities are still working despite more serious COVID-19 outbreak and companies are getting used to the new situation.

Stock Market highlights:

• The VN-Index as a gauge for Vietnam’s stock market fell sharply by 6.6% in July. The decline was broad-based as 278 out of 385 stocks retreated during the month. We mentioned several times that the market was quite overbought, and when the fourth wave of Covid-19 escalated, fears dominated and triggered the massive sell-off in July. Bank stocks (-9.6%), which we think were overpriced before the correction, lost the most in July, followed by real estate (-8.9%). Other sectors such as materials (-5.4%), utilities (-3.9%) and industrials (-3.0%) also suffered significant declines. On the other hand, information technology (+7.9%), consumer discretionary (+3.1%) and consumer staples (+0.5%) achieved positive returns in July.

• Foreign investors were net buyers in the amount of $219mn in July. But this group of investors withdrew $1.0bn YTD on Vietnam’s three bourses. Thus, except for a minimal inflow of $3.1mn in April, this is the first time since October 2020, the market received substantial inflows from foreign investors. The combined average daily trading volume on the three bourses declined sharply by 24% m/m to $1.0bn in July. Trading volume declined notably after the market corrected, showing above all domestic investors’ cautious sentiment.

• During the month, many companies released Q2’s earnings. Among listed companies on the Ho Chi Minh Stock Exchange (Hose), more than two thirds posted positive earnings growth in Q2. All banks and almost all other financial services companies achieved double-digit growth. Companies in the materials sector did also well as they benefited from increasing selling prices. Meanwhile, results from real estate, industrial companies and utilities were mixed. However, we think the H1/2021 earnings results of listed companies were already pricing, causing good performance in their stock prices before the current market correction.

• In our recent special report about how companies in Vietnam are doing in the face of 4th wave of Covid-19, we found that the recent Covid outbreak has only a small impact on most companies of our covered list (less than 5% on 2021’s bottom line on average). While the negative impact from the current Covid outbreak should only be temporary, the long-term outlook for Vietnamese companies remains fully intact. In addition, we would like to stress that the current vaccination campaign is speeding up and Vietnam has a strong record to contain the pandemic. Thus, we believe that the correction in July was a reaction to overheated market conditions, triggered by the latest corona outbreak. The lower equity prices now offer investors a good chance to buy solid and growing companies at reasonable prices and to benefit from the secular growth of Vietnam after the pandemic.

• At the end of July, Vietnam’s Top 100 stocks are trading at a 2021F P/E of 17.6x, at a P/B of 2.6x, and have a 2021F EPS growth of 28.5% (-1.9% in 2020). Meanwhile, the stocks on our buy recommendation list are trading at a 2021F P/E of 12.8x, at an average P/B of 2.4x and have an EPS growth of 23.9% (+1.7% in 2020).

Invest with us:

Please download the July 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.

Please find more information about our products and feel free to get in touch with us at your convenience.

Featured image credit: Internet