We would like to present you our monthly Macroeconomic & Stock Market Highlights for Vietnam alongside with the monthly performance update of the TIM Vietnam Actively Managed Certificate for September 2022.
Vietnam’s Update – Economy
As in Q3/2021, there was a full lockdown with low business activity especially retail sales, in Q3/2022 we see a big jump y/y in most macro-economic measures. Having said that the increases are still moderately better than most expectations. September 2022 macroeconomic highlights:
• In Q3/2022, Vietnam’s GDP grew by 13.7% y/y. The latest print is higher than most expectations, including ours at 8.6% y/y. In the first three quarters of the year, GDP expanded by 8.8% y/y. The strongest driver was the service sector (43.1% of GDP), growing by 10.6% y/y, thanks to the rebound of the wholesale and retail industry (+10.2% y/y) and of accommodation and food services (+41.7% y/y). Output was also increased in the industrial & construction sector (36.9% of GDP) by 9.6% y/y; manufacturing grew robustly at 10.7% y/y. The strong growth resulted from (1) regained growth momentum in production and business activities; and (2) the government’s supportive scheme, which finally came into full play. Last but not least, the agriculture, forestry and fishery sector (20.0% of GDP) posted 3.0% y/y growth thanks to a steady livestock and cattle production. Overall, the economic performance was better than our expectation and we are now putting our GDP forecast for FY2022 and FY2023 under review.
• As a result, 9M/2022 retail sales were up by 21.0% y/y. Notably, real retail sales growth, adjusted for price effect, amounted to a stunning 16.8% y/y in 9M/2022. The growth was accelerated with September growth of 2.9% m/m.
• In 9M/2022, government revenue increased by 22.0% y/y, completing 94.0% of its target for 2022. The strong growth was driven by crude oil income (+103.5% y/y) and by export-import tax income (+22.1% y/y). On the other hand, 9M/2022 government expenditure only totaled 60.9% of the full year plan (+5.4% y/y). The main reason was the delay in public disbursement with just 46.7% plan completion. Given these trends, the government is likely to have a fiscal surplus of approximately $10.3bn at the end of Sep-2022. Therefore, public disbursement has been speeding up since the beginning of Sep, and we believe that government expenditure will rise significantly in coming months, contributing directly to GDP growth in Q4/2022.
• The September CPI rose by 0.4% m/m and by 3.9% y/y, similar to our projection, due to higher food & foodstuff prices (+3.6%) and higher education expenses (+8.4% y/y). In Sep, some provinces revised tuition fee for the new school year driving up the education expenses. Food & foodstuff prices (one third of the CPI basket) had a mild impact on rising inflation thanks to Vietnam’s ability to self-supply most of the main food items like rice, pork, beef, chicken, seafood, etc., which helped to decrease food costs by 0.1% m/m. On the back of still higher commodities prices compared to last year, we think that inflation may reach close to 4.5% the next month, but will then start to gradually ease and close around 4.0% by year’s end in 2022. The current downturn of commodity prices will also help to keep inflation in check.
• FDI disbursement reached $2.6bn in September, up by 54.7% y/y. Total disbursement for 9M/2022 was $15.4bn, up by 16.3% y/y.
• Vietnam exports ($282.5bn) and imports ($276.0bn) were resilient in 9M/2022, rising by 17.3% y/y and by 13.0% y/y, respectively. This led to a moderate trade surplus of $1.1bn in Sep and $6.5bn for 9M/2022. Although we expect exports and imports to grow strongly in the longerterm as Vietnam is aiming to become a new global production hub, the current economic slowdown in the US and in the EU market may negatively affect growth momentum in Q4.
• Vietnam’s Manufacturing Purchasing Managers Index (PMI) recorded 52.5 in Sep, indicating robust growth in manufacturing activities. Operating conditions have now strengthened in the last 12 consecutive months. New orders continued to rise, fueling growth of output, employment and purchasing activity.
• In late Sep-2022, the State Bank of Vietnam (SBV) raised its policy rates by 100bps, which is higher than our expectation of 50bps. The hike was aimed to support the VND, after the FED became more hawkish to fight inflation. Despite the increase of policy rates to stabilize the foreign exchange rate, the Vietnamese economy is recovering robustly with manageable inflation. We think that the SBV is aiming to provide a stable business investment environment to attract foreign investors, guiding towards sustainable growth for the country. The VND has depreciated by 4.5% YTD against the USD, but as Vietnam continues to attract positive foreign inflow from its trade surplus, remittances and FDI, we expect the VND to appreciate in Q4 and end the year with a 3%-4% depreciation. Nevertheless, this is still a minor depreciation compared to those of other currencies in region.
Vietnam’s Update – Stock Market
• Despite positive macroeconomic data in September, the stock market in Vietnam as gauged by the VN-Index dropped sharply by 13.1%, and the index reached a fresh low for the year. The combined average daily trading volume on the three Vietnamese bourses fell by 15.6% m/m to $0.7bn. Selling pressure generally dominated the market as many retail investors were bracing for the worst and raised their cash positions, while foreign investors also increased selling amid the global market uncertainty. Month-to-date, foreign net-selling has accumulated to $152mn, $52mn of which was in the last week of the month alone, reducing YTD net purchases to $20mn. However, retail investors were still the main market participants as they accounted for 86% of the total transaction volume. The worst performing sector was energy (-17.6%), following the decline in crude oil prices and as this sector has featured lots of speculation from retail investors. The second and third -worst performing sectors were industrials (-16.1%) and materials (-15.6%) which were driven down by transportation, construction, steel and chemical companies. Financials (-14.9%) and real estate (-12.4%) were other negative performers, mainly due to heavy foreign outflows. All other sectors also performed negatively between -4% to -13% in September. At the end of the month, the index was trading at a forward P/E of 8.9x, which is close to the historical low of 8.0x during the first COVID outbreak in March 2020.
• Global stock markets around the world performed badly in September as fears around the escalation of the Russia-Ukraine war intensified. The S&P 500 index fell by 9.3% in Sep to the year’s lowest level as investors also worried that continuously aggressive FED rate hikes could push the US and other economies into recession. European shares also experienced a downward trend throughout the month due to fears of an energy crisis and inflation. The cautious global sentiment spread to the Vietnamese market and was intensified by SBV’s announcement to raise policy rates by 100bps. However, since Vietnam’s inflation is likely to remain in check, such action should only be considered as a
proactive move to prevent speculation in currencies and in higher-risk sectors such as real estate (learning from the situation in China).
• The current interest rate hike is likely to only have a minor impact on corporate earnings, even in the most affected sectors such as banking and real estate. The increase in the deposit rates will narrow the net interest margin (NIM) of banks in H2/2022 as there will be a lagging period before banks can reset rates of current loans. However, the NIM in 2023 should increase once again as banks can fully pass higher rates onto customers (the majority of loans are floating and are reset every 3 months). Earnings of most real estate companies should also be mildly affected in 2022 and in 2023 as they mainly rely on the booking of presold units. These companies may delay launching new projects as rising interest rates could weaken the buying power of homebuyers at present. However, as housing demand is still solid, the delay should not last long and the impact on the valuation of real estate companies is unlikely to be felt much.
• The margin loan level, as a proxy from the profitability of major brokers, declined some single digit from Q2/2022 and was around 25% below the peak of Q2/2021. Despite the current market sell-off, we expect to see fewer margin calls coming up as a result of the generally low margin level and as investors are very conservative at present.
• For now, we believe that it is difficult to call the current low of 2022 a bottom. Shadowed by many uncertainties, the weak sentiment is likely to persist, and the market may try to find its bottom in coming weeks. Meanwhile, corporate earnings remain solid, and there is not much change compared to our Q3 forecast so far. Q3 earnings results will be released in upcoming weeks, and the market could turn around fast as many stocks are trading at very attractive prices.
• At the end of September, Vietnam’s Top 100 stocks are trading at a 2022F P/E of 11.4x, at a P/B of 1.8x, and at a 2022F EPS growth of 20.6% (29.3% in 2021). Meanwhile, the stocks on our buy recommendation list are trading at an average 2022F P/E of 10.4x, at an average P/B of 1.8x, and at an EPS growth of 23.7% (30.2% in 2021).
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Please download the September 2022 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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