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 advances 2.9% in September to close at a six-month high of 905

Following its 10%-plus gain last month, the VN Index maintained its upward momentum, advancing another 2.9% ($TR) in September.  The rise was tested several times, but in the end it held up – thanks to another 50 bp rate cut by the SBV, as well as strong PMI and trade surplus numbers.  The VNI closed September at 905, a six-month high, further narrowing its ytd loss to 4.7%.

Trading activity jumps as locals turn bullish

Average daily traded value rose a massive 31% mom to $289m, mostly driven by local investors.  Although the HOSE received $77m of net foreign inflows, there was one block deal in which $237m worth of Vinhomes (VHM) shares were transferred to foreigners from a group of local shareholders.  Excluding this deal, foreign investors net sold $160m for the month.  Foreigners sold stocks across the board, though names that saw the most outflows were Hoa Phat Group (HPG, -$41m) and Vinamilk (VNM, -$23m).  These sales were easily absorbed by local institutions and retail investors, however, as indicated by the market’s rise.

Financials lead, along with MWG and VNM

As trading value rose, brokerage stocks were among the best performers (SSI +14%, VCI +14%, HCM +13%).  Mobile World (MWG) continued its rise, climbing a further 11.7% in Sep following a 25% pop in Aug, as the company delivered better-than-expected monthly results.  And Vinamilk gained 9.8% on strong preliminary numbers (3Q profit up 16% yoy).  As companies wrap up the third quarter, many of them, including MWG and VNM, announced healthy dividend payments (both in cash and in stock) that helped boost investor sentiment and share prices.  Banks led the Index in the latter half of the month, driven by FOL banks benefiting from inflows into local ETFs (Diamond and Finlead) and the possibility of positive 3Q earnings surprises.  In addition, news of specific private banks (VIB +25.9%, LPB +23.9%) moving from UPCoM to the HOSE also added to the positive sentiment, as banks will gain further weight to remain the largest sector in the Index.  On the downside, stocks that weighed on the VNI included Sabeco (SAB, -4.3%), VHM (-3.8%), and GAS (-3.8%).

Government actions positive for economy and stock market

We expect higher market volatility going forward given the current US investigation of Vietnam for possible currency manipulation.  However, we expect the investigation will take time and should not impact Vietnam’s ongoing economic recovery.  Now that Vietnam has successfully managed the COVID-19 outbreak, the Government can focus on boosting the economy, both by increasing infrastructure spending and easing monetary conditions.   These actions should be positive for the economy and the stock market in both the medium and long term.

Robust post-second wave recovery

Vietnam exited September with no new local cases of COVID-19, and now social distancing measures have been removed in all infected areas.  Thanks to the control of the pandemic, there has been a robust rebound in both services and manufacturing, supported by strong improvement in trading activities.  An increase in commerce confirms Vietnam’s role as a global player, while posing a potential external risk of retaliatory measures from abroad.

3Q GDP up 2.62% yoy on manufacturing and services

3Q20 GDP grew 2.62% yoy, reflecting the Government’s success in striking a balance between virus containment and economic activity.  The services sector rebounded by 2.8% yoy, contributing 40% to headline GDP growth as retail sales grew 5.9% yoy from -5.7% in 2Q20.  The manufacturing sector grew 2.9% in 3Q, mainly driven by construction (+5.7% yoy) and manufacturing (+3.9% yoy) from last year’s high base.

Trade growth strong, but with a risk from the US

Trade value soared in September as exports and imports rose by 18.0% and 11.6% yoy to $27.5bn and $24bn.  As a result, the preliminary trade surplus widened to $3.5bn.  This is clear evidence that Vietnam is taking shares from other countries on the global trade stage, especially those that are still struggling with the outbreak or the post-pandemic resumption of activity.  The extraordinary results drew unwanted attention, as the US Treasury recently launched an investigation into currency manipulation by Vietnam.  However, the risk of being directly confronted by the US is not high, as Vietnam has been exporting low-value items that are not priority sectors for the US and plans to buy US goods and services to offset the trade surplus.

SBV cuts rates again to support the economy

Vietnam’s State Bank cut interest rates for the fourth time this year, carving 50 bps off policy rates and 25 bps from the short-term deposit rate ceiling.  The total reduction of 150-200 bps so far this year reconfirmed policymakers’ intention to use easy monetary policy to lessen the impact of COVID-19.  We believe that with inflation being well controlled at below 4%, the SBV has more than enough room to maintain rates at relatively low levels to stimulate demand for loans, of which growth is expected to reach 10% by year end from 6.1% after 9M.

We revise our 2020 GDP forecast to 2.5-3.0%

Throughout this year, Vietnam has demonstrated its economic resilience and competitive advantages on the global stage through increasing its share of trade.  With a strategy to focus on stimulating domestic consumption, and strong support from both monetary and fiscal perspectives, we revise up our forecasted GDP growth this year from 2.0-2.5% to 2.5-3.0%.