Vietnam Market Outlook | June 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, many global markets have been recovering after significant corrections and the VNI has been following this trend. Although liquidity on the VNI remained subdued, market sentiment has been improving and the fundamentals of the macro economy as a whole and corporates on the market remain strong and are expected to buttress the markets against a prolonged downturn. New domesitc retail interest remains strong in the market as new accounts opened in May reached c. 477k, a record high and more than double the previous month.  With the recent corrections in the markets and strong Q1 earnings (+32% y/y), the VNIndex is trading at an attractive valuation for both short-term and long-term investors. We remain confident that economic activities will continue to show improvement in the second half of 2022 as the boost from the reopening of Vietnam‘s borders to international travel from March 15th is expected to pick up in the second half of the year as tourists have had time to plan trips and COVID related travel procedures are becoming less cumbersome and the easing of COVID restrictions in China will be positive for Vietnamese manufacturing and trading activities. 

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 safe haven assets such as bonds and the US Dollar. One of the biggest risks facing Vietnam now is China’s COVID-19 lockdowns with many restrictions which could slowdown the industrial production recovery and challenge Vietnam’s target to curb inflation under 4% for 2022. Although the lockdowns are easing from May 29th, China still applies the zero-COVID policy which effects both direct trade with Vietnam (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 update our projection of Vietnam’s earnings to grow at 21.2% y/y driven by the banking, consumer goods and services, 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 1,660’s level, equivalent to a 2022 F. P/E of ~12.3x from the end of May. 

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 ~11.3x from the end of May. 

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 12.7 from the end of May.