March 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 March 2020.

Key March 2020 macroeconomic highlights:

• For the first quarter of the year, the COVID-19 outbreak negatively impacted almost every sectors of the economy. Some obvious sectors that were hit directly such as hospitality and aviation, while other sectors like manufacturing were affected due to a combination of the supply and demand shocks from oversea. However, up to this point, we believe the government has approached this pandemic very seriously and delivered proactive and sufficient measures to not only contain the outbreak but also to support the economy. Therefore, we retain our current view that the situation will be gradually improved from the end of April until the end of Q2, the economy will likely be back on track by the end of Q2.
• GDP growth was 3.8% in Q1. The first sector (agriculture, forestry and fishery), which contributed to only 10.2% of the total GDP, grew only by 0.2% as a result of salinity intrusion, African Swine Fever, and impact from COVID-19, especially on agriculture product export to China. Whilst the second sector (industrial and construction) still registered a moderate growth rate of 5.2% y/y. The two sub-sectors, i.e. manufacturing and construction, delivered a much better performance than our current forecast, growing at 6.3% and 4.4% respectively. For the third sector (services), GDP contractions were seen in accommodation & catering service and transportation & warehousing sub-sectors, declining by 11.3% and 0.8% y/y respectively due to the travel ban of the government for tourists at first, and in late March also for domestic travelers to contain the outbreak. As a result, the service sector only grew by 3.3% in this period. We still maintain our recent forecast that the outbreak will likely to be
  controlled by the end of Q2 and the economy will start recovering from Q3 and the country’s GDP will end up 4.8% higher than it was in 2019.
• According to estimates of the General Statistics Office of Vietnam (GSO), in Q1/2020, Vietnam’s import value was $56.3 billion, -1.9% y/y and export value was $59.1 billion, +0.5% y/y. The resulted trade surplus was $2.8 billion.
• The March Consumer Price Index (CPI) rose by 4.9% y/y. Of which, the price increase in pork price (+60% y/y) contributed half of the total inflation. However, on m/m basis, the downtrend has started with CPI -0.7%. We think this downtrend will continue in the next months as pork price is softening of late, and petroleum price cuts in March (total YTD price cut amounted to ~40%) will have more visible impacts. We retain our full-year inflation forecast of 2.3%.
• YTD, the Vietnamese currency (VND) depreciated slightly by ~1.8% against the USD. Whereas, some other regional currencies recorded much more significant falls, for instance, a depreciation of 9.9% for the THB, of 5.1% for the MYR, of 18.0% for the IDR, and of 3.9% for the KRW YTD. Our pre-Covid19 forecast for the VND was a slight appreciation against the USD. In our recent note on 22 Mar, we revised that to a slight appreciation of up to 3%, which we retain now. Compared to pre-Covid19 forecast, besides the strengthening of the USD against other currencies, other factors, which are internal to Vietnam, remain such as a strong Foreign Direct Investment (FDI) inflow (3M/2020 disbursed FDI was $3.9bn), a trade surplus (3M/2020 of $2.8bn), and a historical high of foreign currency reserve (~$80bn at the end of 2019)
• The Vietnam Manufacturing Purchasing Managers Index (PMI) fell to 41.9 in March from 49.0 in February. We believe the sharp fall in the PMI was due to the fact that it takes into consideration many of the export-oriented manufacturing. As the final PMI was measured by taking into account different economic variables such as new orders, backlogs of works, suppliers’ delivery time, stocks purchased, etc. any shocks in both global supply and demand would have an impact on the export-oriented manufacturers in the textiles and electronics industry.
• By the end of March, there were 207 reported infected cases with no fatality yet, of which 58 patients were already discharged from hospitals, leaving only 149 cases still under treatment. The Vietnamese government is undertaking more efforts to fight COVID-19. It started with suspension of entry for all foreign nationals, including those of Vietnamese origin and family members with visa waivers and halted all international flights from March 25. Then, the government had decided on the 29th March to suspend all international passenger flights to Vietnam and limit flights between Hanoi, Ho Chi Minh City and other localities in the first two weeks of April. It recently took a step further by implementing physical distancing within 15 days starting from April 1, 2020, on a national scale: public transportation is shut down, however, most businesses, except for restaurants/ shopping malls and alike, can continue to operate. We note that most of the Vietnamese commune by private vehicles being it motorbikes or cars. This soft version of lockdown period is expected to limit the spread from infected-but-still in incubating people. The time bought here is crucial, and while there is a positive development on the front of medicines, we think that isolation can be gradually lifted toward the end of April. Business capacities, with the exception of airlines/tourism/ retail, can go back up to full by the end of Q2. However, utilization may continue to stay lower than pre-COVID-19 for some time given the lower demand for discretionary goods in both the global and domestic market.
• The government also plans to assist companies struggling amid this coronavirus outbreak with tax breaks, delayed tax payments and reductions in land lease fees. Moreover, the government will launch a credit package worth VND250 trillion (US$11bil) to support those affected by the COVID-19 outbreak. This is among several initiatives to support businesses to cope with difficulties and to ensure social security in response to the outbreak. For instance, the State Bank of Vietnam will work with credit institutions to facilitate access to capital, strengthen the administrative procedure reforms, shorten review time for lending dossiers as well as restructure loan repayment and consider reducing interest rate and fee for clients under adverse effects of the COVID-19 outbreak. Moreover, we expect to see more detail measures to support crucial sectors including construction and real estate in the coming months. Finally, as the inflation pressure has been lower, the SBV now has more room to cut the interest rate to support the economy.

Stock Market highlights:

• The VN-Index as a gauge for the Vietnam market declined by 26.0% in March (32.2% in Q1/2020). The decline was broad-based as 343 stocks out of 381 stocks were down. The combined average trading volume on the 3 bourses amounted to $225mn in March, increased by 19.5% compared to February as demand picked up at lower prices thanks to appealing valuation. Most of the demand came from domestic investors as foreign investors were net sellers mostly every day in March with total the amount of $356mn.
• Looking at sector performance in March, the worst performers were real estate (-24.1%) and financials (-29.4%) sectors. While the former one was dominated by Vingroup-related, the later one consisted of mostly banking stocks.
• Amid the current discouraging sentiment in global stock markets, we still see positive developments: Large scale deployment of tested-effective medicine; the approval for the U.S. financial support package for its enterprises and citizens; China production has resumed to almost 100% of capacity, many countries in the world are deploying strict measures to contain the virus. In Vietnam, the COVID-19 fighting has shown positivity as the government was being very proactive and consistent. As such, we expect that businesses will gradually be back on track by the end of Q2.
• Most of the listed companies in Vietnam, with some exceptions, are producing essential products/ services for the domestic market. And this group is seeing and will likely see only mild impacts on their core activities. The exceptions (the second group) are industries that serve external market (airliners with tourists, exporters in textile/garment/ fishery products), or serve the domestic market but with discretionary goods/ services that are likely be curbed in the current situation (retailers, high-end real estate developers). In our discussion with our investee companies, most of which are in the first group, they see mild (consumer staples) to only moderate impacts (real estates – mid-end developers, industrials, materials) on their businesses. Exceptional cases like pharmaceutical firms even benefit as people increase the purchase of certain common drugs. Also, many insiders in companies like VNM, HPG, REE, MWG, NTP already registered to increase their positions, which is a positive signal to the market.
• In April, we think that market sentiment will again swing. However, with a vision that activities will pick up again when the current physical distancing is lifted gradually from the end of April, and completely by the end of Q2, we probably see a normalized business condition. We think
  that the coming weeks are good time window to acquire shares of sound companies. Some characteristics of those are: 1) serving the domestic market; 2) having a solid financial position and may emerge stronger after the crisis as weaker competitors have to exit the market.
• By the end of March, the top 100 stocks were trading at a 2020F P/E and P/B of 11.8x and at a P/B of 1.5x. Our BUY recommendations have a rather undemanding valuation with a 2020F P/E and a P/B of 7.1x and 1.3x respectively.

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Please download the March 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.

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Featured image credit: Internet