September 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 September 2018.

Macroeconomic highlights:

  •  The Q3 GDP grew by 6.88%, almost the same as in Q2, resulting in 9M GDP growth of 6.98%, which is the highest 9M growth rate since 2011. Q3 breakdown by key sectors: trade, retail and services output (40% of total GDP) increased by 6.87%, industry and construction (35% of total GDP) grew by 8.61%, and agricultural (14% of GDP) was up by 3.46%.

 

  • Inflation was at 3.98%, a tad below the government’s target. Even more encouraging, credit growth was 9.5% in 9M vs. 11.0% in 9M/2017. This is well below the government’s guideline of 17% for the full year 2018. In other words: The fast GDP growth was achieved with lower credit growth and well-contained inflation, showing the government’s improved management of the economy.

 

  • The USDVND exchange rate has been fairly stable in September, with the official rates quoted by banks being almost unchanged m/m. Meanwhile the unofficial rate further eased and the gap between the unofficial rate and the official rate narrowed to VND 90 at the end of Sep from VND 300 in mid-August, indicating less speculation by retailer investors. We note that the Vietnamese government has been pursuing a soft peg of the VND against the USD, but in a more flexible manner than before: To manage its foreign exchange policy, it also looks at the VND performance vs. a basket of 8 currencies (USD, EUR, CNY, TWD, KRW, THB, SGD, JPY). This basket includes currencies of countries where Vietnam has both significant trade surpluses (US and EU) and trade deficits. The positive Balance of Payments and the government’s active stance for Vietnam’s external position caused the VND to hold up quite well against the US dollar in recent months. In sharp contrast, the value of most other regional currencies fell quite sharply against the US dollar.

 

  • With regard to the ongoing – and even intensifying – trade tensions between the U.S. and China, our view remains that Vietnam will be at least a near-term beneficiary thanks to cheaper imports and increased Foreign Direct Investments (FDI’s) from companies that decide to reduce their manufacturing exposure to China. Of course, there is some risk that more and more Chinese producers will ship some portion of manufactured goods to Vietnam just to disguise their origin. This may lead the U.S. to consider imposing similar tariffs on Vietnam goods, too. However, the Vietnamese government is warned and aware of this risk, and we think that it will be cautious and diligent when approving new FDI’s.

 

Stock market highlights:•

  • Vietnam’s stock market, measured by the VN-Index as a proxy, increased by 2.8% in September. All three months of Q3 saw positive performances. The ytd-performance of the VN-Index has turned positive to +2.2%; it was still negative in August. But we note of the large contribution from PetroVietnam Gas (GAS, +12% in Sep and +24% ytd) was responsible for 43% and for 91% of VN-Index performance in Sep and ytd respectively. The banks, which strongly rallied in Q1, lost all their gains subsequently.

 

  • Foreign investors returned to become net buyers, purchasing shares worth of USD 10.2mn on all three bourses. This important group of investors were still net sellers in August.

 

  • On Sep 26, in the course of its annual classification review, the FTSE added Vietnam together with Argentina and Tanzania, to its watch list for a possible reclassification as a Secondary Emerging from the current Frontier Market status. FTSE‘s stock market classification within its global equity indices consists of 4 levels: Developed, Advanced Emerging, Secondary Emerging, and Frontier markets. Our take is that while this event is clearly a positive indicator for the development of Vietnam’s stock market, the reclassification will likely be a long process. We think that the imminent impact will be rather muted for 3 major reasons: 1) there are still many technical hurdles (MSCI didn’t put Vietnam on its watch list in its June review despite many investors had hoped for that); 2) even in the case of being put on the watch list, it doesn’t guarantee that Vietnam will be upgraded shortly (China, which was finally upgraded this year, has been on the watch list for more than 13 years); 3) some EM fund managers, who had positioned themselves in anticipation of an MSCI upgrade in June, got hurt badly when the VN market corrected.

 

  • At the end of September, the Top 50 stocks by market cap traded at a 2018F P/E and at a P/B of 21.0x and of 3.3x. The stocks on our BUY recommendation list traded on average at a 2018F P/E and at a P/B of 13.3x and of 1.9x respectively.

 

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. Please find more information on our product page

Furthermore, we offer our clients Discretionary and Investment Advisory Mandates to invest in listed Vietnamese equities. Feel free to get in touch with us at your convenience.

 

Featured image credit: pixabay.vn