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 September 2020.
The portfolio increased by 4.1% in September vs an increase of 2.9% of the reference, the FTSE Vietnam Index. Year-to-date, the portfolio is up by 24.4%, strongly outperforming the reference, which decreased by 4.4%.
Key September 2020 macroeconomic highlights:
- It has been two months since Vietnam reported the second wave of the Covid-19 infection. Until now, the country has done a great job containing the outbreak. Commercial flights to Japan and Korea have been resumed, and other destinations such as China or Taiwan are under consideration. Although tourist arrivals may not recover quickly, the reconnection of flights to those countries will encourage the FDI inflow to Vietnam in the last quarter. As the government did not impose a strict lockdown this time, domestic retail services recovered by 4.5% y/y in Q3, enabling 9M/2020’s total retail services to stay unchanged compared with the same period of last year.
- According to preliminary numbers from the General Statistics Office of Vietnam (GSO), Vietnam’s gross domestic product (GDP) rose by 2.6% in Q3 amid the second wave of the COVID-19 infection and weak global demand that disrupted the economy’s recovery process. However, in a worldwide context, this performance is encouraging. The service sector recovered nicely (+2.8% y/y) from negative growth in Q2 as the government did not impose a total lockdown this time. However, accommodation and catering services still declined, albeit at a slow pace, as Vietnam still banned international visitors to the country. The manufacturing sector registered modest growth of 2.9% y/y, as export-oriented
manufacturers were affected by the weak global demand. Finally, agriculture was up by 2.9% y/y in Q3. Overall, Vietnam’s GDP grew by 2.1% for 9M 2020.
- The September consumer price index (CPI) increased by 3.0% y/y, which was slightly lower than August’s increase. Prices of the food & foodstuffs group rose by 10.8% y/y as hog prices remained elevated during the months, due to the return of the African Swine Flu (ASF) in some provinces, causing difficulty in building up the country’s pig herd. Prices of the transportation group (10% weighting in the CPI) were still significantly lower than in the same period of last year (-12.6% y/y). As demand for traveling and transportation activities will remain weak, we expect the transportation CPI to stay well under control, at least until October. We maintain our full-year inflation forecast at less than 3.0%.
- The Vietnam Manufacturing Purchasing Managers Index (PMI) recorded 52.2 in September from 45.7 in August, being the highest level since July 2019. The successful control over the Covid-19 was a key factor helping to support improvements in business conditions. Solid new orders encouraged manufacturers to expand their purchasing activity for the first time in three months, and at a solid pace.
- 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.
- During the first 9M of 2020, Vietnam’s imports amounted to $185.8 billion, -0.8% y/y, while exports increased to $202.9 billion (+4.2% y/y), according to the General Statistics Office of Vietnam (GSO). Therefore, the trade surplus reached $17.1 billion during this period. In September alone, Vietnam’s imports reached $24.0bn, + 11.6% y/y, reflecting some signs of recovery of new orders, pointing to increasing global demand in coming months. Meanwhile, exports amounted to $27.5bn, +11.8% y/y, driven by electronics products, up by 29.9% y/y.
- In the 9M 2020, FDI disbursement reached $13.8bn, down by 3.2% y/y, mainly caused by COVID-19 concerns that slowed down the disbursement process. However, we retain our view that Vietnam is still a favorite destination for foreign companies in the longer run. As mentioned above, the reconnection of flights with major FDI partners such as Japan or Korea will help to resume the inflow of FDI to Vietnam in Q4.
- On the last day of Sep, the State Bank of Vietnam (SBV) cut 3 benchmark rates, notably the refinancing rate by 50 bps to 4.0% and the cap on less-than-6-month deposit rates by 25 bps to 4.0%. Credit growth was 5.1% ytd in 9M/2020, which was significantly lower than in the same period of last year (+8.4%). Credit growth is significantly below the Vietnam state bank’s target of 11-14% for FY2020 due to weak demand. Meanwhile, money supply growth (M2) was 7.7%, which was also lower than last year (8.4%). Notably, M2 growth has outpaced both credit growth and GDP growth, which could be a reason for the recent increase in excess liquidity in the stock market.
Stock Market highlights:
- The VN-Index as a gauge for Vietnam’s stock market rose by 2.9% in September. The increase was broad-based as 248 out of 383 stocks were up. However, the index is still posting a negative performance of -4.6% YTD. 8 out of 11 sectors reported positive returns in September. Consumer discretionary (+8.3%), materials (+7.1%), and industrials (+4.5%) led the upturn, whereas energy (-0.9%), utilities (-1.4%), and communication services (-7.5%) lagged.
- The combined average daily trading volume on the three bourses advanced significantly by 25.4% m/m to $338.8mn in September (following an already strong 19.3% m/m advance in August), which was about 33.2% higher than the YTD average of $254.2mn. Foreign investors returned to become net buyers in September, with a net inflow of $69.3mn, amounting to a still YTD net outflow of $243.7mn. However, the foreign inflow in September was mostly caused by a $233.7mn domestic-to-foreign put through transaction of VHM on 10 September. Excluding this transaction, foreign investors would still have been net sellers with a net outflow of $164.4mn, amounting to a YTD total net outflow of $477.4mn. Although foreign investors remained skeptical in general, market sentiment remained rather positive thanks to the fund flows into domestic ETFs. The VFMVN30 ETF enjoyed a $7.0mn inflow, continuing the positive inflow trend since June; the VN Diamond ETF also saw a $18.0mn inflow, a strong increase from the July and August level of around $3-6mn. These inflows positively affected share prices of large cap stocks, triggering demand from domestic investors, currently the main drivers of the stock market. The number of new trading accounts from retail investors has been rising steadily, with 28,271 new domestic trading accounts in August, up by 4.4% m/m and 60.0% y/y.
- The positive market performance in September was helped by the increase of excessive liquidity in the stock market due to (i) the widening gap between M2 and credit growth, and the decline in bank deposit rate; (ii) some moderate ETF inflows spurred the overall sentiment as the market is expecting the return of foreign investors. Going forward, despite many uncertainties around the world such as the US Election, US-China tensions and many more, we expect the current rally to continue for the time being. In terms of capital flow, Vietnam’s weight in the MSCI Frontier Index is likely to increase from 12.2% to 30.0% in the MSCI November 2020 update as Kuwait is expected to be upgraded to the Emerging
Market status. This should result in a $68mn potential inflow into Vietnam’s stock market, especially into large cap stocks. In addition, COVID19 is under control. There are only 50 cases left and investors are confident on government’s effective measures. The government is actively boosting fiscal policy by reducing taxes for Small and Medium-Sized Enterprises (SME) as well as by disbursing more capital to support infrastructure projects, some of which have already started by the end of Q3.
- At the end of August, the Top 100 stocks were trading at a 2020F P/E of 16.6x, at a P/B of 2.1x and at a 2020 EPS decline of 8.4%. Meanwhile, the stocks of our buy recommendation list are trading at a 2020F P/E of 10.8x and on an average P/B of 1.6x; 2020 EPS growth is expected to amount to 22.8%.
Invest with us:
Please download the September 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