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 2022.
July 2022 macroeconomic highlights:
- Vietnam’s economy continued to perform strongly in July thanks to its swift recovery from a low base vs last year. Consumption was rebounding robustly as retail sales rose by 2.4% m/m and by 42.6% y/y. It should be noted that 7M/2022 real retail sales growth (adjusted for the price effect) was 11.9% y/y, which is significantly higher than the pre-Covid growth level (+8.7%). Such strong performance was driven by a rebound in consumer demand, particularly from the hospitality and tourism sectors.
- The Industrial Production Index rose strongly by 11.2% y/y in July; manufacturing outperformed with a 12.8% y/y growth rate. Business activities are generally very strong as many new companies are establishing and as existing ones operated at full capacity. Hence cargo volume was considerably higher by 23.4% compared to 7M2019 (pre-Covid time). In the meantime, demand for credit has been rising sharply. According to the State Bank of Vietnam (SBV), credit growth in 6M/2022 was 9.4% YTD, much higher than in the same period of last year (+6.5%), driven by small and medium-sized enterprises and retail.
- The July CPI rose by 3.1% y/y and was slightly up by 0.4% m/m, mainly driven by transportation costs (+15.2% y/y). However, dynamics in transportation costs are easing, shown by the increase of 2.9% m/m. Although tensions between Russia and Ukraine continue to keep the oil price at a high level, the global oil price has started to ease. The government is subsidizing local gasoline prices by cutting environmental tax rates, retail prices have declined by 18.5% from the peak in mid-June. Food & foodstuff prices (one third of CPI basket) increased by 3.0% y/y, driven by higher costs of eating out (+5.7% y/y). Pork and animal feed prices also increased recently, but we expect them to be
mitigated by price reductions of other commodities such as fertilizers. Prices of construction materials have declined from their peak of last month, yet they are still higher than one year ago. Based on our macroeconomic projections, we expect inflation to move towards 5% in the next few months, but pricing pressure should start to ease thereafter, helping inflation to decline to around 4.0% by the end of 2022. - In July 2022, FDI continued to reinforce the positive outlook of Vietnam as FDI disbursement reached $1.5bn, up by 20.0% y/y. For the 7M/2022, total disbursement was $11.6bn, increasing by 11.0% y/y.
- Vietnam recorded a slight trade surplus of $21mn in July as both exports and imports maintained moderate growth of 8.9% y/y and of 3.4% y/y respectively. Overall, the country recorded a small trade surplus of $0.8bn in 7M2022 compared to a $3.3bn deficit in 7M2021. We expect exports to grow stronger in coming months as new phone flagship and accessories release by Samsung and Apple are expected to draw much international attention, resulting in a strong new order flow.
- Vietnam’s Manufacturing Purchasing Managers Index (PMI) posted at 51.2 in July, down from 54.0 in June but remained above 50.0 for the tenth successive months, indicating continued robust growth of manufacturing activities. Although the decline index signaled a softer improvement. New order increased but the rate of expansion diminished amid the signs of demand softening, shipping difficulties and price pressures. However, there were signs of price and supply pressures easing at the start of the third quarter.
- During the month, the State Bank of Vietnam (SBV) intervened into the money system as it issued T-Bills and withdrew excess amounts of the Vietnamese currency (VND) from the interbank market. Thanks to this liquidity adjustment, the USD/VND exchange rate remained relatively stable (-0.4% in July) despite a 1.5% increase of the USD Index and a 75bps rate hike by the FED. As the FED is expected to increase interest rates for the rest of the year by another 100-125 bps, we think the SBV may raise its policy rate by 25-50bps in early Q4. However, given moderate inflation and robust economic growth, we believe this is not the beginning of a tightening cycle, but rather a healthy adjustment to retain the competitiveness of the VND. Hence, we expect the VND to depreciate slightly against USD by 1-2% in all 2022. The Vietnamese currency continues to be backed by a solid trade surplus and strong FDI inflow
Stock Market highlights:
- The VN-index ended July with a slight increase of 0.9%, resulted in a decline of 20.5% YTD. Financials (+4.6%) were the best performing sector in July thanks to robust earnings growth of several banks that released their earnings. Consumer Staples rose by 3.0% as they were supported by solid retail sales and by a rebound in consumer demand, while Industrials went up by 4.4% as the swift economic reopening boosted production activities. On the other hand, Consumer Discretionary dropped by 10.7% mainly due to the poor performance of Mobile World (MWG) as it showed unexpected softening earnings in Q2. As for other laggards, real estate declined by 2.8% due to concerns about a tighter credit flow to the sector. However, so far this year, credit for real estate and housing loans still recorded solid growth of 8.4% and of 14.4% respectively in 6M/2022. Utilities (-3.7%) also underperformed.
• In July, the combined average daily trading volume on the three bourses was $0.5bn, falling by 37.5% compared to the previous month. Also, the margin lending balance was lower by 28.6% from the Q1/2022 level at $5.4bn. The rather low liquidity and the reduced leverage demonstrated investors’ caution. On a positive note, investors’ cash deposit balance is still at a high level of about $2.9bn, according to statistics from the FiinGroup. Such cash reserves are waiting for an attractive opportunity to enter the market as a bottom-building process might form.
• Foreign investors sold shares in the amount of $50mn in July after 3 consecutive months of accumulation in the second quarter. Year-to-date, Vietnam’s Stock Market has received a total inflow of $127mn. Notably, in the final ten days of July, foreign investors were net buyers in the amount of around $100mn, outpacing sellers and indicating a promising start into August.
• In the short-term, we expect Vietnam’s stock market to remain rather volatile, mainly due to the uncertain international developments, including the global economy and inflation. In addition, Vietnam’s stock market may be somewhat affected by the assumed rate hike of the SBV in H2/2022 that may continue to tighten liquidity of the stock market. However, we think the extent of higher policy rates is minimal and such market concerns are already priced in the stock market. Many companies that we cover have delivered strong earnings growth in Q2 and we expect these dynamics to be maintained in coming quarters. Last but not least, the current market valuation remains attractive. Hence, any further corrections open opportunities to buy stocks with strong fundamentals for long-term investments.
• At the end of July, Vietnam’s Top 100 stocks are trading at a 2022F P/E of 12.5x, at a P/B of 2.0x, and at a 2022F EPS growth of 21.6% (32.6% in 2021). Meanwhile, the stocks on our buy recommendation list are trading at an average 2022F P/E of 11.2x, at an average P/B of 2.0x, and at an EPS growth of 22.8% (24.2% in 2021).
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Please download the July 2022 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.
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