Expectations of a rapid economic recovery in 2022
The fourth wave of Covid-19 has severely impacted Vietnam's economic growth, especially in Q3 21. The economy is expected to grow modestly around 2.0-2.5% in 2021, even lower than the previous record low of 2.9% in 2020. Nonetheless, the combination of national vaccination coverage, a recovery in the manufacturing sector, a rebound in consumer spending and continued fiscal stimulus could help the economy grow by 6.8% in 2022, higher than the government's target of 6.0-6.5%.
Vietnam's inflation is under control, deposit interest rates are unlikely to move much higher in the first half of 2022
The inflationary spiral is increasing rapidly in most developed countries, especially in the US. Monetary policies indicate that interest rates will be moving higher but there are divergences. Regarding Vietnam, we expect full-year inflation to average around 3.8% in 2022, driven by price appreciation from the food and construction/housing groups. Deposit interest rates could inch slightly higher. However we think that the rise will be negligible and should take place at the end of the year.
VNIndex forecast to fluctuate in the range of 1,340-1,730
This is according to Rong Viet's scenario of a 17% EPS growth in 2022 (representing 41% of total market capitalisation) and a forward PE of 16.4 times. The high profitability of the stock market in 2020-2021 has attracted the attention of a large number of individual Vietnamese investors. We think this will continue in 2022. An average of 150,000 new trading accounts are opened monthly. The average order-matching liquidity of the whole market could be at VND35,000bn/session (+36% yoy).
Key risk factors
Markets may be more sensitive and volatile to negative information, especially as valuations have reached a much higher level than in the period before the first outbreak of Covid. We believe that there are key risk factors to keep in mind: 1) the probability of vaccine-resistant strains of the virus could increase the uncertainty of the economic recovery; 2) The fluctuations in global geopolitics; and 3) the impact of global contractionary monetary policies, which could affect sentiment.
Regarding earnings, we believe that there will be a disparity of returns among sectors, and even a divergence between companies in the same industry. Investment cash flow will rotate and diverge between industries/stocks. Therefore, the ability to pick stocks will determine the best way to outperform. Businesses that can recover quickly from the economic support packages and consumer demand, as well as catch up with the change in customer behavior after the pandemic are our favourite picks.
Speculative factors dominate the stock market in the last weeks of 2021
After social distancing measures were implemented again in Q3 21, the market behaved more on thin speculative information than on substance, causing stocks with good fundamentals to barely grow in terms of price action. The available excitement of the new individual investors scheme (F0) has promoted the rapid price increase of mid-caps and pennies, causing the market price of some stocks to move far above their so-called fair value. The irrationality will probably continue, at least until the end of the first quarter's earnings season – when the strengths and weaknesses of businesses are clearly shown, or maybe even longer than that. However, after a year or two, new individual investors will have more experience in screening investment ideas, so as not to be the last to leave the 'speculative ship'.
Download the pdf to read Rong Viet's in-depth report including their 2022 market outlook and sector-wise top picks.