October 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 October 2018.

Macroeconomic highlights:

• Vietnam’s trade balance is estimated to have reached a surplus of $ 0.1bn in October, bringing the 10M trade surplus to $ 6.4bn. Total exports amounted to $ 200bn, up by 14.2% yoy. Exports of domestic enterprises advanced by 16.8% yoy, while FDI companies achieved a somewhat lower growth of 13.2% yoy. Imports rose to $ 194bn, up by 11.8% yoy. Parts and materials for further processing such as electronics, computers, (+13.2%), composite materials (+19.3%) and textiles (+12.9%) were still the main import drivers. Other products had higher import values mainly due to considerably risen prices such as petrol (+20.0%) and steel (+10.6%).
• Retail sales and service revenue continued to post solid growth of 11.4% yoy to VND 3,613 trillion nationwide (about $ 155bn).
• The Nikkei Vietnam Manufacturing Purchasing Managers’ Index stayed at a solid 53.9 points in October, indicating a consistent expansion of manufacturing activities.
• FDI disbursement was still strong, reaching $ 15.1bn, up by 6.3% yoy. Manufacturing was the main pool of FDI inflow, accounting for 54% of the total FDI registration amount. The real estate sector came second, making up 22% of the total FDI amount.
• Inflation increased by a mere 0.3% m-o-m, mainly due to higher petrol prices, which rose by about 3.4% since the beginning of October, but then retreated by 1.0% at the end of the month. As a result, inflation advanced by 3.9% yoy.
• The overnight interbank interest rate has increased by 1.8% m-o-m. As a seasonal phenomenon, liquidity usually dries up from November to January. Hence interest rates might continue to trend up as we approach year-end. As for the USD/VND exchange rate, it has been fairly stable in October. Official quotes by banks were almost unchanged m-o-m around USD/VND of 23,340.

Macroeconomic highlights:

• Vietnam’s stock market, measured by the VN-Index as a proxy, declined by 10.0% in October. This correction was very similar to the setback of 10.5% in April 2018. As a result, the ytd-performance of the VN-Index has turned negative to -8.1%. The correction was broad-based as most stock prices declined (281 of 371 tickers) on the Ho Chi Minh City stock exchange. October’s average daily transaction value of the three bourses in Vietnam was nearly unchanged compared to the previous month at $ 269mn. Foreign investors were net buyers of about $ 391mn; but they could turn into net sellers of $ 79mn by unwinding a single transaction as they bought treasury shares from the Masan Group (MSN) with a value of about $ 470mn.
• Bank stocks suffered the worst performance in October (down 11.3%). Next came the real estate sector, which fell by 8.9%, led by Vinhomes, which alone lost 21.8%. Both sectors contributed for about 50% of the VN-Index’s negative performance.
• As for the Vietnamese equity market in general, most uncertainties are originating from global issues such as the trade war, increasing US interest rates and a slower money flows to emerging markets. Vietnam’s correlation to the Emerging Market Index increased considerably (average correlation of 0.84 in 2018). Domestic investors, which account for the majority of trading in Vietnamese stocks, have acquired a tendency to closely watch foreign flows and base their trading decision partially on those flows. We expect that so-called tracking trading to continue and to dominate the Vietnamese market’s performance. In our view, only a significant improvement in macro and/or micro economic fundamentals such as corporate earnings could stop this pattern. In the medium term, we expect investors to become more selective again. Some sectors such as sea port, industrial parks and construction materials may start to outperform, shrugging off the current uncertainties. These sectors should benefit from the trend of moving businesses out of China and relocate them to ASEAN countries, where Vietnam appears to be one of the most attractive destinations. In the short-term however, we expect market sentiment to remain weak and the market to display elevated volatility. This environment however offers a good chance to gradually accumulate fundamentally sound stocks with low multiples and good dividend yield. At the end of October, the Top 50 stocks by market cap traded at a 2018F P/E and at a P/B of 16.8x and of 2.7x respectively. The stocks on our BUY recommendation list traded on average at a 2018F P/E and at a P/B of 12.1x and of 1.7x respectively.
• The volatility of the VN-Index was accelerated by the increasing speculation on the derivative market, which offers future contracts for the VN30-Index (this index covers the top 30 large-cap and liquid stocks listed on the Ho Chi Minh City stock exchange). The average daily transaction volume of the derivative market reached around $620mn (the nominal value) in late October, considerably more than the monthly average of $100mn at the beginning of the year. The daily average transaction volume on the derivative market was much higher than the average daily transaction value of VN-Index of $ 226mn in October.

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Please download the October 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 to invest in listed Vietnamese equities.

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