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 May 2020.
On a YTD basis, the portfolio’s value is up by 6.7% vs. a decline of the FTSE Vietnam Index of -8.0%.
Key May 2020 macroeconomic highlights:
- As Covid-19 seems to be successfully contained in Vietnam, most business activities resumed at the end of April. Businesses are gradually recovering, and most people are confident that the pandemic is over thanks to the proactive measures taken by the government. During a recent meeting with the National Assembly, the Minister of Planning and Investment (MPI) presented its first version of the revised 2020 economic targets. The MPI presented two different scenarios, based on the timing when Vietnam’s key trading (export) partners such as USA (24%), EU (13%), ASEAN (10%) etc. will be able to contain the spread of the pandemic and fully reopen their economies. The MPI suggested to work with Q4 as the base scenario (Q3 as the best-case scenario). In this case, Vietnam’s GDP is likely to grow between 4.5% – 5.4%, and the CPI should stay at 4% (initial target of less than 4%). Exports are expected to grow by 4% (initial target 7%). The budget deficit/GDP and the public debt/GDP ratios should increase to 4.8% (initial target of 3.4%) and to 55.5% (initial target of 52.3%) respectively.
- To counter the negative impact of the Covid-19 measures, the Vietnamese government recently announced new infrastructure projects and to speed up existing projects. The Vietnamese government is also urging the provincial authorities to speed up budget disbursement, which should show a significant positive effect by the end of Q3/2020.
- According to estimates by the General Statistics Office of Vietnam (GSO), Vietnam’s exports amounted to $99.3 billion, -1.7% y/y, while imports were $97.5 billion, -3.8% y/y during the first five months of this year. Hence, the trade surplus amounted to $1.8 billion during this period. In May, however, Vietnam’s exports declined by 15.5% y/y, reaching $18.5bn. This was due to weak global demand during the coronavirus crisis, affecting Vietnam’s main export products such as textile & garment (-34.3% y/y) and mobile phones (-30% y/y). The country’s imports recorded $19.4bn this month, down by 15.9% y/y. The Manufacturing Purchasing Managers Index (PMI), although was still below 50 (indicating business
activity contraction), has increased to 42.7 in May from 32.7 in April.
- The May Consumer Price Index (CPI) rose by 2.4% y/y. Prices of the food & foodstuffs group (36% weight in the CPI basket) increased by 12.1% y/y as hog prices stayed elevated at VND100k/kg across the country. However, we expect the hog price to stabilize in the coming months as the ministry of agriculture and rural development recently approved imports of live pigs. On the other hand, prices of the transportation group (9% weight in the CPI basket) declined significantly by 23.4%. This was due to both i) weak transportation demand caused by the Covid-19 pandemic, and ii) another petroleum price cut at the end of April. We retain our full-year inflation forecast of 2.3%.
- According to the Ministry of Planning and Investment, FDI disbursement reached $6.7bn in the first five months of 2020, down by 8.2% y/y. FDI registration for new projects amounted to $7.4bn, up by 15.2% y/y. The manufacturing and processing sector accounted for 37%, and production and distribution of utilities (gas, water, and electricity) made up 53.8% of the newly registered FDI. The global travel ban has prevented more FDI registrations; we believe that these will simply be delayed until later this year.
- Despite the (temporary) slowdown of the FDI flow and the lower trade surplus, the currency (VND) continued to strengthen. In May, the VND appreciated by 0.5% against the USD, narrowing the YTD depreciation to only about 0.6%.
- In May, the State Bank of Vietnam (SBV) lowered its policy rates to support the banking system and the economy. The ceiling rates on deposits of one to six months were cut to 4.25% from 4.75%, and the rates for non-term deposits and those below one month, to 0.2% from 0.5%. Also, the short-term lending rates for five priority business sectors were lowered to 5.0% from 5.5%.
Stock Market highlights:
- The VN-Index as a gauge for Vietnam’s stock market, continued to recover in May with a strong gain of 13.2%. The rally was broad-based as 273 out of 387 stocks were up. However, the index is still posting a decline of 10.1% YTD.
- Foreign investors continued to be net sellers in May with net sales of $17mn. Noteworthy was an additional investment of $100mn that GIC Singapore poured into the MASAN Group. Foreign investors have been net sellers for 4 consecutive months since February, and total YTD foreign net outflow was $654mn.
- Despite the foreign outflow, the combined average daily trading volume on the three bourses surged to $285mn, up by 28% m/m, and about 30% above the YTD average. These strong activities were solely driven by domestic individual investors who contributed 76% to the total trading value in May, compared with an average of 70% in 2019. Based on an own survey among some major securities companies, margin lending increased somewhat in May, but is still below the level that prevailed at the end of 2019. The number of account openings increased significantly during the last months (an average of 34,242 new accounts per month in the Mar-April period vs. 15,652 in all 2019), mostly domestic individuals’
accounts. This is positive as more people like to participate in the market. The lower deposit rates could even accelerate this trend. These new domestic investors were probably active buyers, contributing to the good market performance and elevated trading volume.
- Looking forward, despite the above-mentioned positive trends, there is risk of a correction because (i) we don’t expect to see foreign inflow in coming months; (ii) Q2/2020 will be the most affected quarter by the Covid-19 outbreak, so second quarter earnings are likely to be very weak, possibly affecting the market; (iii) the money inflow from domestic individual investors, especially from new ones, is likely to normalize after shortlived speculation. Last but not least, profit taking activities may arise as the VN-Index has swiftly rebounded by about 30% from the March bottom.
- This potential correction will offer a good buying window for companies which serve the domestic market, and which have a solid financial position.
- By the end of May, the top 100 stocks were trading at a 2020F P/E of 15.3x and at a P/B of 1.9x
Invest with us:
Please download the May 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.
Featured image credit: Internet