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 June 2021.
Key June 2021 macroeconomic highlights:
- The 4th wave of Covid-19 continued to escalate, and added 8,720 new cases in June, bringing the total number of cases in Vietnam to over 16,000. The majority of recent cases were found in Ho Chi Minh City, while the situation in old hotspots in Bac Ninh and in Bac Giang provinces are now under control. Local authorities in Bac Giang and in Bac Ninh have allowed most manufacturing companies that are located in these two provinces, to go back to production with safety social distancing measures applied. Ho Chi Minh city, on the other hand, continues to see more cases outside the quarantined areas. Social distancing has been in place (all restaurants and non-essential service shops had to close) at the beginning of June. The Vietnamese government has launched the largest vaccination campaign, aiming to have 70% of the population vaccinated by the end 2021. The government stresses that vaccination is the best option to contain the pandemic and to maintain economic growth momentum at the same time.
- Vietnam’s GDP growth in Q2 was 6.6% y/y despite the fact that the 4th wave of Covid-19 started in May. Growth reached a mere 0.4% in the same period of last year. Among the three main sectors of the economy, agriculture grew by 4.1% y/y thanks to the containment of the African Swine Fever and thanks to strong growth of the fishery production as demand from export markets rebounded. The second sector (industry and construction) grew strongly by 10.3% y/y from the low base of last year. Factories outside Covid-19 hotspots still maintained production, which also drove the usage of electricity and gas at the same time. Regarding the service sector, which account for over 45% of the country’s GDP, it posted a growth of 4.3% y/y vs a decline of 1.9% y/y in Q2 of last year, mainly thanks to the surge in financial services (+9.9% y/y). Vietnam’s H1/2021 GDP was generally in line with our expectation of 6.1% for 2021. However, since the new wave of Covid-19 seems to be more serious than previous outbreaks, we are reviewing our projection for the remaining quarters of the year.
- Vietnam’s exports and imports continued to be strong in H1/2021. Specifically, exports grew by 28.4% y/y to $157.6bn, and imports increased by 36.1% y/y to $159.1bn. Hence, Vietnam recorded a trade deficit of $1.5bn vs a trade surplus of $4bn in H1/2020. In June alone, Vietnam reported a trade deficit of $1bn since exports rose by 17.3% y/y, while imports increased by 33.5% y/y. The weaker growth in June’s exports is attributable to the temporary closing of some industrial parks in the Bac Ninh and in the Bac Giang provinces during the pandemic. However, the strong import growth (much of the imports are input materials and input components for export goods) could indicate a potential recovery in exports in coming months, especially when major export markets namely the US, China, and the EU are continuing to reopen their economies.
- Vietnam’s Manufacturing Purchasing Managers Index (PMI) in June reduced to 44.1 from 53.1 in May due to the lockdown of Bac Ninh and Bac Giang provinces. However, it is still better than the first wave of Covid-19 in April 2020, which PMI was only 32.7. We think PMI will rebound in coming months because the pandemic is under control at large manufacturing hubs and vaccination progress is speeding up.
- June’s CPI increased by 2.4% y/y due to price rises in accommodation & construction materials and in transportation. The accommodation & construction materials index rose by 4.0% y/y due to globally rising commodity prices, which is also reflected by higher local construction material prices. The transportation index surged by 15.5% y/y due to: (1) the low base in June 2020; (2) domestic petroleum price increased by nearly 50% y/y, following the trend of rising global oil prices. In general, these price movements roughly matched our expectations.
- FDI disbursement continued to grow by 6.8% y/y to $9.2bn, while registered FDI slightly declined by 2.6% y/y to $15.3bn. The manufacturing sector was still the most attractive sector for FDI inflow, accounting for 45% of the total registered value, while electricity production was the second largest contributor.
Stock Market highlights:
- The VN-Index as a gauge for Vietnam’s stock market rose by a strong 6.5% in June, resulting in an increase of 28.7% YTD. It outperformed most of its regional peers such as Thailand (+9.6% YTD), the Philippines (-0.1% YTD), Indonesia (+0.1% YTD) and Malaysia (-5.4% YTD). The performance of VN-Index was driven by materials, financials and real estate, which gained 45.4%, 45.1%, and 31.8% respectively YTD. Information technology was the strongest sector with an increase of 67.1% YTD, but its weighting is very small at 1.5% of the index. On the other hand, lagging sectors included consumer discretionary (+26.1%), energy (+10.4%), health care (8.7%), industrials (+5.9%), and utilities (6.5%), while consumer stapples declined by 3.5%.
- Foreign investors continued to be net-sellers in the amount of $200mn in June, cumulating to a total net outflow of $1.3bn YTD on Vietnam’s three bourses. Thus, except for a small inflow in April, foreign investors consistently withdrew capital from the Vietnamese stock market. The outflows were broad-based across ETFs and open-ended funds except for the VN Diamond ETF and for the Fubon FSTE, which received strong inflows of $182mn and of $274mn YTD respectively. The general trend to outflows was also witnessed at other regional markets such as Thailand ($2.4bn), the Philippines ($1.6bn), and Malaysia ($1.0bn). The combined average daily trading volume on the three bourses continued to improve in June, reaching $1.3bn, up by 14.4% m/m even though the trading volume declined significantly towards the end of the month: Many brokers restrained margin lending to meet the quarterly requirement of the state securities commission. However, this situation should only last for a short period of time, and market liquidity is expected to increase again next month.
- Year-to-day, the Vietnamese stock market has benefited from strong inflow from domestic investors and the solid earnings expansion of many listed companies. However, we think that the market is quite overbought at present. This is because even though second quarter’s earnings will be positive, a large part of the positive news is already priced in. In addition, we observe that the inflow from domestic investors has decelerated as of late. As a result, a consolidation period for the general market might be at hand, and stock performances will be likely diverse. We expect the market to rotate away from overvalued high growth stocks, whose earnings might have peaked, into value stocks with undemanding valuations, whose earnings should continue to benefit from the domestic and the international economic recovery.
- At the end of June, Vietnam’s Top 100 stocks are trading at a 2021F P/E of 18.0x, at a P/B of 2.7x, and have a 2021F EPS growth of 33.7% (-3.3% in 2020). Meanwhile, the stocks on our buy and hold recommendation list are trading at a 2021F P/E of 14.0x, at an average P/B of 2.7x and have an EPS growth of 20.6% (+14.6% in 2020).
Invest with us:
Please download the June 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.
Featured image credit: Internet