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 2019.
Key September macroeconomic highlights:
- Q3 GDP growth was 7.3%. This brought the 9M 2019 GDP to VND2,523 trillion, up by 6.98% y/y. The contribution of the first sector (agriculture, forestry and fishery) to total GDP, which has steadily decreased over time, stayed at less than 14.0% as growth was up by only 2% y/y. In contrast, the second sector (industrial and construction) strongly outperformed, growing by 9.3% y/y. Its contribution to total GDP has increased significantly in recent years, reaching 35.8%. We expect this trend to continue in the short- and in the medium term as FDI into this sector is surging due to restructurings of global supply chains. The third sector (trade, retail and services) grew by 6.8% y/y, and this sector contributes 38.7% to the country’s GDP. For the full year 2019, Emerging Asia Economics and MayBank both estimate that Vietnam’s GDP will increase by 7.0% y/y. Our current forecast is 6.8% y/y.
- Vietnam’s trade surplus reached $5.9bn in the 9M 2019, according to an estimate of the General Statistics Office (GSO). During this period, exports rose by 8.2% y/y, while imports went up by 8.9% y/y. Mobile phones, along with textile and garments, and electrical products, continued to be the main export drivers. In 9M 2019, Vietnam exported $38.6bn worth of mobile phones and parts (19.9% total export value). Moreover, Google recently announced to shift its Pixel smartphone production from China to Vietnam, starting this year.
- September’s CPI recorded the lowest increase in 41 months, staying at 2.0% y/y, and was up by 0.3% m/m. Credit growth was 8.4% in 9M/2019, lower than in the same period of last year (+9.5%). This is a positive sign as it shows that economic growth becomes less reliant on credit growth.
- Total FDI disbursed in the 9M 2019 reached $14.2bn, up by 7.3% y/y. The manufacturing and processing sector continued to receive strong inflows as a result of changes in the global supply chains amid the unsettled trade war. During this period, newly registered capital for this sector rose by 60% y/y.
- In September, the State Bank of Vietnam (SBV) cut several policy rates by 25 bps, i.e. the refinancing rate from 6.25% to 6.0%, and the discount rate from 4.25% to 4.0%. However, we believe that the impact of these steps will be insignificant for two reasons: First, most of the non-customer deposit funding of Vietnamese banks happens through interbank lending, whose rates are already lower than the SBV’s revised policy rates. Second, the SBV has been using another tool than policy rates to manage monetary policy: It gives credit growth limits to each individual bank, which are based on their financial strengths as well as on the SBV’s overall credit growth target for the whole country.
Stock Market highlights:
- The VN-Index, a market cap weighted index of the Ho Chi Minh Stock Exchange (HSX), Vietnam’s main bourse, increased by 1.5% in September. Vinamilk (VNM, index weight of 6.5%) rose by 7.5%, contributing about 30% to the index performance. Banking stocks were also among the top gainers as this sector rose by 5.5%, contributing to the remaining 70% of the index increase. The main drivers here were Vietcombank (VCB), Techcombank (TCB) and Bank for Investment and Development (BID). The strong performance of the banking stocks was supported by both sector- and company-specific news. The SBV has recently lowered its policy rates by 25 bps. Although, as discussed in the macro section above, we perceive this rate cuts as rather symbolic, domestic investors interpret this as a positive signal for banking stocks. VCB is negotiating with the FWD Group on an exclusive bancassurance cooperation with a total upfront payment of $400 mn. As for BID, the market expects that the bank’s private placement, which was fully subscribed by its strategic investor, KEB Hana Bank, will help the institution to fulfill the Basel II requirements. With regard to our recommendation TCB, in our view, its performance was mainly driven by its undemanding valuation and by the positive sector sentiment.
- In September, foreign investors were net sellers of $4mn on the three bourses, most likely a result of the net outflow of $8mn from the three largest ETFs. The average trading volume on the three bourses fell in September to $198mn, down by 12.8% m/m and by 19.5% y/y. Given the current political uncertainties and the global economic slowdown, we are concerned that foreign inflows into frontier markets such as Vietnam will suffer.
- Even though the market may continue to be weak in coming months, there are good investment opportunities for medium- to longer-term investors. We think about stocks of companies with solid business models, which are currently trading below their fair values. More specifically, we are turning more positive on banking stocks as we observe 1) lower systematic risks as many banks do now comply with Basel 2; 2) reasonable valuations after the long correction of the sector, which has peaked in Q1/2018; 3) commitments of some banks to provide new products to retail clients, where there is plenty of room for expansion. But investability may be a problem as most of our preferred bank stocks have their foreign room full. In September, the HSX introduced 3 new indices with the focus on financial stocks and on stocks, where the foreign-room is full. In the future, there could be passive investment funds on these indices, which do not have foreign ownership limits.
- By the end of September, the top 100 stocks were trading at a 2020F P/E of 15.0x and at a P/B of 2.2x. The names on our Buy recommendation list were trading at an average 2020F P/E of 10.2x and at an average P/B of 1.3x.
Invest with us:
Please download the September 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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