Vietnam

Vietnam continues to be one of Asia’s most compelling investment stories. With 94 million people – 41% of whom are aged under 25 – this young and dynamic country is the world’s 15th most populous.

Vietnam benefits from excellent demographics, an entrepreneurial culture, abundant resources, a largely coastal population living on its long seaboard, and a strategic location bordering China in the north.

Vietnam’s lower wages and operating costs are allowing it to capture manufacturing business from China. At the same time, newly signed trade agreements and internal reforms are making it ever easier for foreign companies to do business here.

Consistently growing by close to 7% annually, Vietnam is rapidly transforming into an export powerhouse with a thriving domestic consumer market to match. As a place to invest, the country continues to offer extraordinary potential.

VNI +17.1% in April on stimulus-induced worldwide rebound

Following the historic sell-off in March, the VN Index rebounded by 17.1% ($TR) in April.  This was the VNI’s biggest monthly gain since August 2009, on the back of synchronized global rallies thanks to massive, unprecedented monetary and fiscal stimulus deployed by central banks and governments worldwide.  Vietnamese stocks rose across the board despite the country being under lockdown for three weeks.  The best performers were the stocks that were hit hardest during the sell-off, namely consumer discretionaries – Mobile World (MWG, +39.8%) and Sabeco (SAB, +32.5%).  And while they still rose nicely, Vietcombank (VCB, +10.5%) and Vinamilk (VNM, +9.6%) were the biggest relative underperformers.

Foreign outflows high, but offset by local buying

Despite the recovery, trading activity fell slightly.  Average daily traded value fell 2.9% mom to $185m.  For the third consecutive month, foreign investors dumped shares aggressively, pulling out a further $262m from the HOSE – mostly from blue-chips:  Vingroup (VIC, -$52m), Vinamilk (-$26m), and Vietcombank (-$19m).  This large foreign outflow was offset, however, by strong local buying.  Companies continued to announce massive share buybacks, most notably $110m from VP Bank (VPB) and $70m from VNM.  And retail sentiment improved further thanks to the Government’s effective measures to contain the spread of the virus.  Vietnam has reported no new local cases since 16 April.

1Q20 aggregate profit –23% yoy, due to a few companies hit by COVID-19

As 1Q20 results rolled out, aggregate net profit declined 23% yoy – mostly due to huge losses by airlines and oil & gas companies.  Because of the significant drop in the oil price, Binh Son Refinery (BSR) and Petrolimex (PLX) both recorded net losses in the trillions of VND from inventory write-downs.  Vietnam Airlines (HVN) and VietJet (VJC) suffered huge losses for the first time in many years due to extensive COVID-induced travel restrictions.  Yet, not all was bad – a few companies still delivered positive surprises to the market.  Vinhomes (VHM) reported 169% profit growth, driven by the recognition of a significant bulk sale transaction of one of its residential projects.  And Hoa Phat (HPG) announced a robust 27% profit growth for 1Q20, thanks to strong steel sales and better-than-expected performance of its agriculture business.

Risks for earnings forecasts, but recovery in sight

Given the 1Q20 results, we see downside risks to our 2020 earnings forecasts.  Still, as social distancing orders are being gradually removed and most businesses already started resuming operations in late April, Vietnam’s domestic economic disruption seems to be at least partially over, paving the way for recovery.

Economy poised for recovery after shutdown lifted

The COVID-19 pandemic continued its worldwide rampage in April, and Vietnam was not spared.  The Government implemented strict social distancing measures to contain the virus, pushing the economy to a standstill for several weeks.  As a result, manufacturing and service activities contracted by the most ever, while trade value also deteriorated.  But because of the Government’s aggressive response, Vietnam’s economy is poised for recovery.

Virus successfully contained in April

During the most critical period of the virus from 1 to 23 April, all non-essential businesses were closed.  Local infections were brought under control, and as no new cases had been recorded for 25 days, social distancing measures started being eased in late April.

But at the cost of manufacturing and services

The impact of the shutdown on the domestic economy was severe.  The contraction in manufacturing was observable in total electricity consumption, which declined 6.8% yoy, while the composite PMI Index fell to 32.7 in April, the lowest reading ever.  Regarding the services sector, the number of international passengers coming to Vietnam plunged by 98% to only 26,000, of which most were engineers arriving to maintain production during the lockdown.  Total retail sales slumped 26% compared to same period last year.  And the sharp decline in global demand caused trade to decline, directly affecting Vietnam’s imports and exports, which are expected to have fallen by 15% in April.

VND stable on healthy external balance, debt ownership structure

In the financial market, a healthy external balance – and less than 1% of total debt being owned by foreigners – helped stabilize the VND without any intervention by the SBV.  By contrast, many other currencies are being hit hard by either the easing of monetary policy by central banks, or by outflows from fixed-income markets.  Despite loan growth of only 1.32% in 4M2020, the lowest since 2011 due to weaker demand and strict lending rules, we expect faster credit disbursement in the remainder of the year thanks to the continued dovish stance on the monetary side, expansion of preferential loan packages, and more aggressive infrastructure spending from the Government.  This could support the 10% credit growth target for the year.

Manufacturing shifting out of China into Vietnam

Vietnam’s outstanding performance in in controlling the virus is creating new opportunities for the country in the post-COVID world.  Despite the Tet holiday and the lockdown, total registered FDI increased by 4.5% in the first four months of 2020 and dozens of companies that want to exit China are working with Vietnam’s Government to shift their factories to the country.