June 2020 Macroeconomic & Stock Market Highlights for Vietnam

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 June 2020.

Year-to-date, the portfolio is up by 6.6%, strongly outperforming the reference, which decreased by 11.6%.

Key May 2020 macroeconomic highlights:

  • According to preliminary figures from the General Statistics Office (GSO), Vietnam’s gross domestic product (GDP) grew by 0.4% y/y in the April-June period despite the slump in economic activities during the lockdown period. Among the three main sectors of the economy, the service sector was the most affected one, declining by 1.8% y/y in Q2/2020. Accommodation and catering services even fell by 28.6% y/y during this period as Vietnam still bans international visitors to the country. The manufacturing sector recorded modest growth of 1.4% y/y, as export-oriented manufacturers were affected by weak global demand. Agriculture was slightly up by 1.7% y/y in Q2.
  • However, the weak performance of the country’s GDP was expected. But now, business activities are resuming, and people are confident that the pandemic is finally over thanks to the aggressive measures taken by the government. In June, retail sales rebound by 5.3% y/y after declining for 3 consecutive months. For the H1/2020, the country’s total investments increased by 3.4% y/y; public investments even expanded by 7.4% y/y and state budget expenditure called for an increase of 19.2% y/y (vs a 4.3% increase y/y in the same period of last year). This shows that the Vietnamese government is putting real efforts to stimulate the economy. We still expect the country’s GDP to be up by around 4.2% for the full year.
  • During the first half of 2020, Vietnam’s exports amounted to $121.2 billion, -1.1% y/y, while imports were $117.2 billion, -3.0% y/y, according to first estimates of the GSO. Hence, the trade surplus amounted to $4.0 billion during this period. In June, Vietnam’s exports declined slightly by 2.0% y/y, reaching $21.0bn. On the other hand, the country’s imports recorded $20.5bn this month, up by 5.3% y/y. However, the increase in imports could indicate a potential recovery in exports in coming months as Vietnam needs to import raw materials for its export-oriented manufacturing sector. For instance, imports of electrical components, which are often used for mobile phones and laptop assembling, rose by
    30.8% y/y in June.
  • The Consumer Price Index (CPI) rose by 3.2% y/y in June. Prices of the food & foodstuffs group (36% weighting in the CPI) rose by 12.5% y/y as hog prices remained stubbornly high at ~VND90/kg across the country. However, the increase of hog prices could be somewhat contained as Vietnam started importing live pigs from Thailand. Additionally, as the country’s total pig herd size, which has risen by an average of 5% in recent months, has now already reached 80% of the pre-ASF (African Swine Flu) level, we expect pork prices to stabilize in coming months. But prices of the transportation group (9% weighting in the CPI) continued to be significantly lower than in the same period of last year (-17.3% y/y).
    However, transportation prices rose by 7.4% m/m thanks to 14.2% higher petroleum prices in June. We expect that the Ministry of Industry and Trade will continue to adjust the petroleum price slightly upwards in July to reflect the international oil price development. But the overall price level of the transportation group will still be much lower compared to last year thanks to weak transportation demand caused by the COVID-19 outbreak. We maintain our full-year inflation forecast of less than 3.0%.
  • According to the Ministry of Planning and Investment, FDI disbursement reached $8.7bn in the first half of 2020, down by 4.9% y/y. However, there are signs of recovery as FDI disbursement was $2.0bn in June, up by 8.3% y/y.
  • Despite lower exports and the slowdown of the FDI flow, the Vietnamese currency (VND) continued to strengthen. In June, the VND appreciated by 0.3% against the USD, narrowing the YTD depreciation to only about 0.2%. We maintain our forecast that the VND/USD will remain at this level until the end of the year.
  • The Vietnam Manufacturing Purchasing Managers Index (PMI) recorded 51.1 in June, up from 42.7 in May and above the 50.0 no-change mark for the first time in five months

Stock Market highlights:

  • The VN-Index as a gauge for Vietnam’s stock market corrected by 4.1% in June. The declines were quite broad-based as 198 out of 387 stock were down and 10 out of 11 sectors had a negative performance. Consumer staples (-5.1%), and financials (-4.7%) were the main laggards. As a result of the negative performance in June, the index is down by 13.8 % YTD.
  • Foreign investors turned around to become net buyers in June with net purchases of $618mn. This included an amount of $650mn that a consortium, led by KKR with the involvement of Singapore’s Temasek, spent to acquire a 6.1% stake in Vinhomes (VHM) from domestic sellers. VHM is a real-estate subsidiary of Ingroup (VIC). Without this transaction value, foreign money would have continued to be withdrawn from the Vietnamese market during June. Total YTD foreign net outflow was $ 142mn (including the above transaction and an investment of $100mn by GIC Singapore to buy additional shares of the Masan Group in May).
  • The combined average daily trading volume on the three bourses amounted to $339mn in June, up by 20% m/m and about 41% above the YTD average. The surge in trading volume continued to be led by domestic individual investors who contributed more than 80% to the total trading volume in June. But trading volume dried up quickly towards the end of the month; hence, the average trading value of the last two weeks of June was just about half of that of the first two weeks. As foreign outflow is likely to continue for the time being, we think the market will struggle to show constructive performance in the short-term. Domestic individual investors alone are probably exhausted to maintain the current market
    rally (despite the setback in June, the VN-index is up 28% from the bottom in March) and the high trading volume.
  • During the month, many listed companies have organized their Annual General Meetings to outline their financial goals for 2020 and their estimated Q2 results. In general, expected second quarter results were weak as expected, which was no surprise. However, the recovery is expected to take more time as originally thought. As a result, Q3 results are likely to look weak again, which may weigh on the equity market, together with the expected lack of foreign money inflow. However, as always, there will be some outstanding companies, whose businesses will continue to do well, and their stocks are likely to outperform the general market. Such companies should have a strong domestic market share or benefit from low input material prices or enjoying increased capacities. Most importantly, any positive news regarding the development of a vaccine for Covid-19 should positively impact the stock market, providing increased visibility for the economy and ultimately, for corporate earnings.
  •  By the end of June the top 100 stocks were trading at a 2020F P/E of 15.0x and at a P/B of 1.9x and at 2020 EPS growth of -7.9%. Meanwhile, the stocks in our buy recommendation list are trading at a 2020F P/E of 8.9x on average and at a P/B of 1.7x. 2020 EPS growth is expected to amount to 18.0%.

Invest with us:

Please download the June 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.

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

 

Featured image credit: Internet