Strategy Note /

Vietnam investment strategy – October 2019

    Lam Nguyen
    Lam Nguyen

    Banking, Market Strat

    Hoang Nguyen
    Tu Vu
    Son Tran
    Rong Viet
    4 October 2019
    Published by

    Vietnam’s economy continued its positive run as GDP reached 6.98% yoy in 9M 19, the highest in nine years. CPI was 2.5%, lower than the government’s target of 4%. Registered and disbursed FDI saw a strong increase in September: 47% and 60% mom, respectively.

    We believe the sound macroeconomic outlook can help Q3 earnings results. Based on our survey for stocks in VN30 Index, we think earnings among sectors and stocks will diverge from each other. In particular, some leading stocks in sectors that saw strong growth after H1 19, such as banking, real estate and retail, will continue to see healthy revenue and profit. We note that Q2 earnings impacted stock price movement significantly in July. Hence, we think the market can rise due to our positive forecasts for Q3 earnings.

    Although Vietnam’s macroeconomic indicators paints a great picture to draw foreign capital, outside risks remain high as the US economy is slowing down. The US ISM manufacturing index reached only 47.8 in September, the lowest reading in ten years. Hence, the market has placed more bets on another rate cut in late October.

    In addition, trade friction has negatively impacted market sentiment. Although the US and China will have another meeting in October, recent comments from President Donald Trump criticising China during a UN Speech and the US considering delisting Chinese companies from US stock exchanges are key risks.

    The Brexit story has not directly impacted the Vietnam stock market in recent months. However, a no-deal Brexit can negatively impact global sentiment and eventually Vietnam. As a result, ETF fund flows can continue to be disrupted. Vietnam ETF fund flows recorded an outflow of US$12mn in September. As foreign investors’ activities on the stock exchange lags by one month compared with ETF funds flow, they would continue to net sell in October, but the figure will likely be lower than in September.

    The interplay of international and domestic factors makes the forecast of market indices no longer important. Instead, we prefer stock picking. In particular, we believe that companies with business activities associated with growth from domestic consumption and investment are the ones that investors with a long-term view can consider. We discuss MWG, HAX and PC1 in this strategy report.

    In sum, we think the stock market can rise in October thanks to the domestic macroeconomic environment and positive Q3 earning results in some leading sectors. The probability of surpassing the 1,000 mark is rising. Still, it is quite challenging for the VN-Index to maintain this level as there could be low or no support from foreign capital in October.