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 2019.
Key July macroeconomic highlights:
- According to an estimate of the General Statistics Office (GSO), the country’s July trade balance delivered a surplus of $0.2bn, increasing the ytd surplus to $1.8bn. In July, exports grew by 9.3% y/y, and imports by 5%. Mobile phones, along with textiles and garments as well as electrical products, continues to be the export drivers. Since the beginning of the year, mobile phone exports have amounted to $27bn, up by 3.1% y/y. As the US – China trade war is heating up, Vietnam is widely regarded as one of the main beneficiaries. As a result, the trade surplus with the US rose to over $20bn ytd, up by 28% y/y. However, the US President has warned Vietnam regarding this matter. Hence, Vietnam is forced to take a different approach, including buying more US products and cracking down Chinese transshipment. The government aims to minimize the risk of receiving penalties from the US. Vietnam has also diversified its exports by signing FTAs with other countries, including the EU-VN FTA signed in June
- Inflation remained moderate at 2.4% yoy, and 0.2% m/m. Ytd core inflation, which excludes food & foodstuffs, energy as well as government-supported prices such as healthcare and educational services, was up by 1.9% y/y
- In July, a Chinese survey ship, supported by other vessels, has conducted activities that Vietnam says violate its Exclusive Economic Zone and continental shelf. This incident has further violated an existing stand-off between Beijing and Hanoi surrounding the South China Sea. Vietnam’s Foreign Ministry made an official announcement demanding China to stop these “unlawful activities”. The most recent major incident with regard to the South China Sea happened in 2014. Vietnam has tried to engage the international community, especially the countries that have on-going disputes with China with regard to the South China Sea, i.e. Philippines and Malaysia. The US are also supporting Vietnam in this matter.
- GSO estimated that the Vietnamese government has disbursed investment capital in the amount of VND30tn in July and VND158tn ytd. But this amount is equivalent of only 45% of the 2019 budget and is just 3.9% higher than in the same period of 2018. The investment capital was distributed mostly in large cities, with Hanoi topping the list with VND21.4tn ytd., followed by Hochiminh city with VND10.4tn ytd.
- Total FDI disbursed since the beginning of the year amounted to $10.5bn. FDI mostly went into manufacturing and processing projects, which accounted for over 70% of the newly registered capital.
Stock Market highlights:
- The VN-Index, a market-cap weighted index of the Ho Chi Minh Stock Exchange (HSX), Vietnam’s main bourse, increased by 4.8% in July. Six names contributed to 86% of the performance: Vietcombank (VCB, +15%), PetroVietnam GAS (GAS, +12%), Bank of Investment and Development (BID, +11%), Vingroup (+6%), Vinhome (+6%), and Vincom Retail (+6%). These six companies have a combined weight of 41% in the VN-Index, which consists of 379 stocks. The remaining 373 stocks of the HSX increased by 1.0% on average.
- The performance divergence between these large caps and the rest of Vietnam’s equity market has further accentuated. The total market cap of all listed stocks on all three bourses has gone up to USD 191bn (81% of GDP), but the free float is rather limited. The domestic free float is only 34% among the Top 50 companies by market cap, which together account for 66% of the market cap of all three bourses. Domestic individual investors, which make up close to 80% of the average trading volume, as well as ETFs, are largely dominating the stock market. Due to their lack of research capability, domestic individual investors tend to trade on news/rumors or on foreign activities.
- The average combined daily trading volume on the 3 bourses amounted to $193 mn, similar to the H1 average. In July foreign investors’ net purchases amounted to $95mn. Of which $55mn was the net foreign purchase in Petrolimex (PLX) as the company sold its treasury shares. The three largest ETFs, which have a combined NAV of $1.1bn at the end of July, had a net inflow of $4mn in July, which is rather low compared to $209mn in H1. Of note, while the VanEck Vectors Vietnam ETF and the VFMVN30 had small inflows, the DB X-Tracker FTSE Vietnam ETF saw a small outflow in July. Given the current political headwinds and the potentially stronger USD, foreign inflows to emerging/ frontier markets such as Vietnam may suffer some near-term headwinds. The U.S. Fed hinted that it may not cut rates as much as market participants had previously expected.
- The above-mentioned trading pattern has resulted in large valuation differences between the large caps and the rest of the market. Within the Top 100 stocks by market cap, at the end of July, the Top 10 were trading at a 2019F P/E and at a P/B of 23.7x and of 4.1x respectively. The remaining stocks of the Top 100 were trading at much lower multiples (2019F P/E and P/B of 11.8x and of 1.6x respectively).
- In our view, the inefficiency of Vietnam’s equity market is providing attractive investment opportunities for long-term investors. For example, Binh Minh Plastics (BMP), which is the market leader in construction plastic pipes with a close to 30% nationwide market share, is now trading at a 2019F P/E and at a P/B of 9.2x and of 1.6x respectively. Techcombank (TCB), whose foreign room is however full, is trading at a 2019F P/E and at a P/B of 7.5x and of 1.2x vs. Vietcombank (VCB) at 21.1x and 3.9x. As experienced many time in the past, stock markets can be inefficient in the short-term. In the longer run however, stock prices tend to revert to their intrinsic values.
Invest with us:
Please download the July 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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Featured image credit: news.zing.vn