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 2019.
Macroeconomic highlights:
Q1 macro indicators continued to point to a positive development:
- GDP growth was 6.79%. Although this is slightly lower than in Q1/2018, it is higher than in all Q1’s during 2011-2017. A breakdown shows that agriculture grew by 2.7%, manufacturing and construction increased by 8.6%, and the trade and service sector expanded by 6.5%. These three sectors made up 10%, 35% and 44% respectively of total GDP. The remaining 11% of GDP came from taxes.
- Inflation remained muted at 2.7% yoy and at -0.2% m-o-m. In the m-o-m trend, 7 out of 11 sub-categories saw declines due to the after-Lunar New Year effect and as the African swine flu impacted the pork price. The most notable decline was in food and foodstuffs (-1.4%, alone causing the headline inflation to decline by 0.5%). With regard to the categories, which registered higher prices, the transportation price index was up by 2.2% as petroleum prices rose steadily in March. Core inflation, which excludes food & foodstuffs, energy as well as government-supported prices such as healthcare and educational services, was up by 1.8% yoy and down by 0.06% mom. Taking “advantage” from the currently low inflation and in order to reduce its subsidies, the government increased electricity prices by 8.4% with effect from 20 Mar. The average electricity price is currently at 8 US cents/ kwh, amongst the lowest in the world.
- 3M credit growth was 1.9% (2.2% in the same period of last year). Despite lower credit growth and lower core inflation, the country’s GDP growth remained robust. This is a healthy sign that Vietnam relies less on credit for its business expansion. • The March trade balance of goods showed a surplus of $0.5 bn.
- The USDVND exchange rate was relatively stable with a mid-rate of VND23,200/USD according to Vietcombank, unchanged ytd and mtd.
- The country’s budget balance showed a surplus of $1.0 bn, mainly because of low public investment (disbursement was $1.4bn, only 8% of the full year budget). The government’s anti-corruption campaign is still in full force
Stock Market highlights:
- The VN-Index as a gauge for the Vietnamese stock market, increased by 1.7% in March. Once again, the performance was largely driven by a handful of stocks: the three banks VCB, BID, CTG (total index weight 13.6%) contributed 74% to the VN-Index performance; the three Vingroup-related companies, namely VIC, VHM and VRE (total index weight 23.5%) were responsible for 41% of the index performance. Excluding these 6 tickers, the VN-Index, which consists of 386 companies, would even have declined slightly by 0.5%. With regard to the three-month performance of the VN-Index of +10.1%, the same pattern can be observed: The above-mentioned 3 banks made up 22% of the VN-Index performance, and the 3 Vingroup-related names accounted for 48%. Two other stocks, Vinamilk (VNM) and PetroVietnam Gas (GAS), contributed 10% and 3% respectively to the index performance.
- The performance of the 3 banks was supported by news that strategic investors were purchasing primary shares to recapitalize their balance sheets. The purchase of a 2.5% share in VCB (post-transaction) for $270 mn by Singapore’s GIC was indeed confirmed. Similar transactions in shares of CTG and of BID are still pending, with no indication on when they will be completed. While shares of VCB are quite expensive in our view (2018 P/B of 3.8x), CTG and BID have problematic loan books, and no one really knows their effective NPL size.
- The strong performance of the Vingroup-related companies could be a result of money inflows into ETFs. At this point, we again like to stress their demanding valuations: VIC, a conglomerate with very diverse businesses from property development to smartphones and automobile production, is trading at a 110.6x trailing P/E; VRE, a retail space operator, carries a trailing P/E of 33.5x; and VHM, a property developer, shows a whopping ratio of 7.1x trailing P/B. Please note that Warburg Pincus, a strategic investor in VRE, reduced its holdings by 50 mn shares ($75 mn) in March, which were sold below the current market price. VNM is also expensive in our view, with a 2019F P/E and a P/B of 24.7x and of 7.7x, respectively. GAS, which is trading at more reasonable valuations (trailing P/E of 15.9x), has only a 4% free-float, which is almost entirely taken up by one or two foreign funds.
- Trading volume, as the sum of the average daily volumes on all three bourses, was USD 259 mn, up by 11% m-o-m. Foreign investors made up 17% of the total volume, and their net purchases amounted to a mere $ 2.8 mn. Speculation is still at a low level, measured by the respective credit margin that securities firms are offering to domestic retail investors. The margin has fallen by -25% from its Aug 2018 high and even by -36% from its Mar 2018 high, indicating fairly low risk from leveraged trading activities. The 2019 Annual General Shareholder Meeting season has just started and is expected to last till early May. During this time, there will be more information on companies’ business performance and their expectations as well as on dividend payments among other topics.
- Meanwhile, global market risks, which are increasingly impacting Vietnam’s equity market, remain elevated in our view. In general, foreign inflows to Vietnam are influenced by global market developments. However, many domestic retail investors look at foreign trading activities for their decisions, thereby increasing the correlation.
- By the end March, the top 100 stocks were trading at a 2019F P/E of 17.5x and at a P/B of 2.4x, while the names on our Buy recommendation list are trading at an average 2019F P/E of 9.8x and at an average P/B of 1.4x.
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Please download the March 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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