Vietnam Market Outlook | May 2022

For the long-term outlook, notwithstanding the recent market correction, we believe that the fundamentals of both the Vietnamese economy and stock markets are well positioned for strong long term growth despite short term volatility. Growth in the overall participation in Vietnam’s equity markets, especially from retail investors, bodes well for the continued development of the markets supported by domestic investors. While foreign flows have been negative in the year to date, we believe there have been no structural changes to the market that will keep foreign investors withdrawing for too long as the long term market prospects are too attractive to ignore for long. We also believe that the wave of SOEs divestment and new listing will begin given the current good condition of the equity market, giving new investment opportunities to investors. The new HOSE’s platform is expected to be applied in the second quarter of 2022, which will expected for new functions such as intraday trading T+0, bonds trading, Central Clearing Counterparties (CCP) and further products contributing to the market development.

In the short term, the stock market in Vietnam, and many other markets globally, edged down in April due to growing risks. Despite improving economic indicators and inflation still be maintained within the government’s plan, the VNIndex has experienced lower liquidity as local retail investors, many of whom have joined the market in the recent 2 years boom period, have been cautious during this period of volatility. However, the return of foreigner investors as net buyers in April combined with their trend of net buying stocks in other ASEAN markets in recent months can support the market in short term. Also, Vietnam opened its borders to international travel on March 15th, which will put a jolt in tourism related activities for 2022. The rising prices of crude oil, steel and rubber benefit companies operating in oil and gas exploration activities, gasoline distribution, steel manufacturing and natural rubber producing.

Currently, the decision of the US Fed and other central banks to hike interest rates is impacting stocks market all over the world in short-term as investor may change to other attractive and secured asset such as bonds and US Dollar. In the circumstance of high inflation globally, the hike interest rate is necessary step to curb inflation which threatens to harm economic stability. The biggest risks with Vietnam now is China’s COVID-19 lockdowns with many restrictions which could slowdown the industrial production recovery and challenge the Vietnam’s target to curb inflation under 4% for 2022. We are monitoring the effects of China’s lockdowns both on how they will directly affect Vietnam in terms of trade (China being Vietnam’s largest trading partner) and what the second order affects will be as supply chain disruptions continue to cause headaches worldwide.  

Moving forward, we raise our projection of Vietnam’s earnings to grow at 25.7% YoY driven by the banking, real estate, air transportation and oil & gas sectors as well as the recovery of domestic consumption post pandemic. Taking the 3 year average P/E of near ~15.8x and our base case earnings expectations, we estimate the index will end the year to near 1,730’s level, equivalent to a 2022 F. P/E of ~12.5x from the end of April. 

The optimistic scenario is based on the resumption of international flights worldwide combined with a positive effect from the fiscal and monetary package of the Vietnam Government and that corporate earnings exceed our expectations. Based on that scenario, our earnings expectations would rise and we assume that earnings multiples would return to the ~16.2x level, resulting in the index reaching an 1,800-1,900 point level and representing a 2022 F. P/E of ~11.9x from the end of April. 

Finally, in the pessimistic scenario, we see continued uncertainty and fear clouding global markets with rising concerns on inflation, how fast and strong central banks will react to inflationary pressures by raising rates and slow downs in China further stretching global supply chains. This would result in earnings falling short of our expectations and market valuations dropping as apathy takes hold of the recent boon of new investors into the market. In this scenario, we could see the index struggle to post gains for the year and trade around the 1,450 point level, equivalent to a 2022 F. P/E of 13.4 from the end of April.