Vietnam Market Outlook | Nov 2022

VNIndex slides 9.2% in October as key policy rates rise for the second time in as many months

October was a frightful month for the markets as further anti-corruption efforts were undertaken, particularly in the real estate sector, which have spooked markets already reeling from ongoing global macro pressures, resulting in the VNIndex finishing the month at 1,027.9 pts (-9.2% in October), while dropping below the 1,000 point level during the month for the first time since November 2020. The SBV increased key policy rates by 100bps on Oct 25th for the second time in as many months as the VND has been coming under increased pressure from increasing pressures from global central bank rate hikes and the strengthening USD. Headline macro figures posted encouraging results in Oct with the IIP increasing 6.3% y/y, the PMI remaining in expansionary territory, albiet just barely, at 50.6, retail sales posting strong growth at +17% y/y and the YTD trade surplus widening to US$ 9.4bn on a 14.7% y/y increase in total trade. Despite the positive macro results, going forward it will be important to keep a close eye on the manufacturing sector as deteriorating economic conditions in some of Vietnam’s key export markets (the US and EU which account for 42.5% of total exports YTD in 2022) could results in diminishing orders as we near the end of the year season which typically sees an uptick in exports to fulfill holiday demand.    

Actions from the SBV were again in the spotlight with a series of moves similar to September with an increase of key policy rates by 100bps (2nd increase of the year) as pressure has been increasing on domestic interest and exchange rates, which in turn has been putting pressure on inflation. The reference rate for the VND to the USD was increased several times to close the month at 23,695 VND/USD (-1.3% m/m) while the average rate at commercial banks dropped to 24,838 VND/USD (-4.1% m/m). We believe that the moves were necessary given the continual aggressive actions by central banks around the world in order to maintain the gap between VND and USD interest rates to support the domestic currency. With recent aggressive rate hike of SBV (100bps), we continue to be positive about controlling inflation in Vietnam and maintain our expectation of Vietnam’s CPI for 2022 will increase in the range of 3.2% – 4% and remain within the Government’s target of 4%. Despite fears that Vietnam’s growth prospects could slow in the final quarter of 2022 due to higher interest rates, Vietnam’s economy has essentially regained its growth momentum as the post-COVID recovery carries on with good fundamentals in 9M2022. We also maintain our expectation that Vietnam’s GDP will continued to record strong growth which will grow in range between 5.4% – 7.6% y/y in 4Q2022 and 7.8% – 8.4% y/y in 2022.

The VNIndex closed the month down 9.2% with liquidity dropping to 13.4 VNDtr ADTV during October, down 14.5% MoM. Real estate stocks bore the brunt of the decline as news broke of the arrest of another leader of a sizable private real estate company, contributing to the real estate group falling by 10.1% in the month. The materials sector saw a significant pullback by 19.3% in October, primarily driven by the decline in HPG which posted its first quarterly loss since listing in 2007 as margins are being squeezed on both sides from decreasing selling prices on low demand, particularly in the stalled real estate market, and increasing costs driven by surges in coal prices and the strong USD making imported materials more expensive. Given the lack of catalysts on the horizon to turn sentiment positive and continuing global uncertainties, we expect the market to remain volatile in the short term.