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 October 2020.
Year-to-date, the portfolio is up by 26.4%, strongly outperforming the reference, which increased by 1.8%.
Key October 2020 macroeconomic highlights:
- Vietnam is being hit by the most intense series of tropical storms in decades, disrupting millions of people’s livelihood in the country’s central area. The latest typhoon, Molave, is the fourth tropical storm to batter the country since 11 October and the ninth since the start of the year. Though these storms caused some permanent damage, we think that the government will support the affected areas. Hence, the impact on the country’s economic recovery process (from the second wave of COVID-19) should be minimal.
- With regard to contain COVID-19, Vietnam has done a great job so far as there are now 58 consecutive days without any community transmitted cases. Commercial flights to Japan and to Korea have resumed, allowing these countries’ investors to travel to Vietnam. While this creates some risk of importing new cases, we believe the Vietnamese government is well prepared for any potential outbreak.
- In the 10M 2020, FDI disbursement reached $15.8bn, down by 3.2% y/y, mainly caused by COVID-19 concerns that slowed down the disbursement process. However, in October, Vietnam recorded the second consecutive month, where FDI disbursement grew ($2.0bn, +2.5% y/y), confirming signs of a more sustainable recovery of FDI inflow. As Vietnam remains a favorite destination for foreign companies in the longer run, we expect more FDI money inflow in coming months.
- In October, the Pacific Business Forum was held in Hanoi, and several agreements between U.S. and Vietnamese companies could be concluded, pointing to a constructive trade and economic cooperation between the two countries. One notable deal was signed between Delta Offshore Energy, Bechtel Corporation, General Electric, and McDermott for the development of the Bac Lieu LNG-to-power project, amounting to more than $3bn of U.S. equipment and services. This is positive news for Vietnam both economically and politically. In essence, this 3,200 MW power project will not only help to address the increasing clean, reliable, and competitive energy needs of the country’s rapidly growing economy, but also helps to narrow the trade surplus between the two countries, easing the risk for Vietnam of being labeled as a currency manipulator.
- The October consumer price index (CPI) increased by 2.5% y/y, much less than September’s increase. Although hog prices had been trending down since the beginning of October, they were still much higher than in this period of last year. Therefore, food & foodstuffs prices rose by 9.5% y/y. We expect that hog prices will rise again in the last two months of 2020, albeit at a rather slow pace, due to the return of the Asian Swine Flu (ASF), which delays the rebuild of pig herds in some Southern provinces. However, we do not expect hog prices to reach the 2019 year-end high level. Prices of the transportation group (10% weighting in the CPI) were still significantly lower than in the same period of last year (-13.5% y/y) as the demand for traveling and transportation activities remained weak, and gasoline prices (Ron 92) fell slightly in October. Moreover, Typhoon Molave caused a delay in the domestic traveling recovery. However, as this event is only short-term, we expect the transportation CPI to pick up in the last two months of 2020. As for now, we maintain our full-year inflation forecast at 3.0%.
- Vietnam’s Manufacturing Purchasing Managers Index (PMI) posted 51.8 in October, down slightly from 52.2 in September but still signaling an improvement in the health of the manufacturing sector. Business conditions have now strengthened in two successive months.
- The Vietnamese currency (VND) continued to stay strong and nearly unchanged against the USD year-to-date. We expect this pattern to continue until the end of the year, supported by (i) strong Foreign Direct Investment (FDI) inflow and (ii) an increasing trade surplus as key business partners re-open their economies.
- In October, Vietnam’s imports recovered strongly by +10.1% y/y and reached $21.1bn, showing signs of recovery of new orders, which is pointing to increasing global demand in the coming months. Meanwhile, exports amounted to $26.7bn, +9.9% y/y, driven by electronic products, which were up by 13.3% y/y. However, due to weak import/export activities in previous months, Vietnam’s exports amounted to $229.3bn during 10M of 2020, up by a mere 4.7% y/y, while imports increased to $210.6bn (+0.4% y/y). Therefore, the trade surplus reached $18.7 billion during this period. For now, we maintain our current forecast that the country’s 2020 export and import value will reach $273.4 billion (+3.4% y/y) and $254.1 billion (+0.1% y/y), respectively, resulting in a $19.3 billion in trade surplus. However, we would consider revising our projections if new export orders maintain October’s solid pace.
Stock Market highlights:
- The VN-Index as a gauge for Vietnam’s stock market rose by 2.4% in October. The increase came from 159 out of 386 stocks. It is notable that October’s solid performance was significantly impacted by shares of Masan Group (MSN), which surged by 53.9% as the market speculated on a corporate action that might positively impact the company’s profit going forward. Another major contribution to the index was Vingroup (VIC). VIC stock price rose by 16.4% in October as the market expected that the stock will benefit from the increasing weight of Vietnamese stocks in the MSCI Frontier Markets 100 Index thanks to its current low liquidity. However, VIC stock trading volume increased significantly at higher price level, thus such advantage should be minimal in the coming time. MSN and VIC alone attributed 2.6% of the 2.9% increase of the VN-Index in October. However, the index is still posting a negative performance of -2.3% YTD.
- The combined average daily trading volume on the three bourses advanced significantly by 22.6% m/m to $415.5mn in October (following an already strong 25.4% m/m advance in September), which was about 53.0% higher than the YTD average of $271.6mn. Foreign investors were net sellers in October, with a net outflow of $321.0mn, amounting to a YTD net outflow of $564.7mn.
- The VN-Index rose steadily from 905 points at the beginning of the month and peaked at around 970 points, with occasional declines as investors realized some profits after the market started to rally in August. However, on 28 October, the VN-Index saw the largest intraday decline in the past 3 months (-2.7%) without any specific reason on the surface. But (i) the market might be exhausted after the rally from the beginning of August, thus the correction should ease the risk for the market in coming months. (ii) Investors might be concerned about the recent rise in margin loans. Total margin loans of the top 10 brokerage companies are estimated at VND41 trillion, up by 15.1% YTD, being the highest level ever. However, cash position of clients at these 10 brokers even grew faster and reached VND20 trillion, up by 108% YTD. Therefore, the ratio of cash positions to margin loans improved significantly, and we think that the stock market is developing healthy thanks to abundant cash from local investors as a result of declining deposit rates. (iii) External factors: the rising Covid-19 cases and stricter social distancing policies across the US and the EU raise concerns with regard to the global economic outlook as well as with regard to Vietnam as these economic blocs are the country’s main trading partners. Also, investors might have delayed their investment decisions due to the upcoming US elections.
- Going forward, we think that the above reasons are more short-term, and the longer-term driver for the stock market remains intact, which is increasing inflow from domestic and international investors. Thus, we think the market will take a couple of weeks to consolidate and to absorb news about rising Covid-19 cases and the US elections, before trending up again. Contributing to our constructive view is the fact that foreign investors should become net buyers from November 2020 onwards thanks to inflows from funds tracking the MSCI Frontier Markets 100 Index as Vietnam’s weight in this index will increase in steps as Kuwait is upgraded to the Emerging Market Index in November. Apart from fundamentally strong stocks in our recommendation list, which should benefit from Vietnam’s solid economic data, we also think that some selected large cap stocks will benefit from the potential reversion of foreign inflows. Our top picks here are VHM, SAB, HPG and VNM.
- At the end of October, Vietnam’s Top 100 stocks were trading at a 2020F P/E of 16.9x, at a P/B of 2.1x and at a 2020 EPS decline of 8.2%. Meanwhile, the stocks of our buy recommendation list are trading at a 2020F P/E of 11.3x and on an average P/B of 1.8x; 2020 EPS growth is expected to amount to 20.8%.
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Please download the October 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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