Strategy Note /

Vietnam Strategy: November – Expect market to move up but beware of volatility

  • Clear resumption of economic activities in Q4 21 and supporting packages will boost market sentiment

  • Short-term volatility is a risk

  • VN Index to move in the 1400-1500 level

Lam Nguyen
Lam Nguyen

Banking, Market Strat

Kiet Tran
Tung Do
Rong Viet
9 November 2021
Published by

In November, we expect the market to continue its upward trajectory thanks to the clearer resumption of economic activities in Q4 21 with the government’s support package being the main driving force to enhance market movement. However, short-term volatility is possible from a correction following the strong rally in Q3 business results due to the abundance of capital flows in the market. We predict the VN Index to move in the 1400-1500 range.

Clear resumption of economic activities in Q4 21 and supporting packages will boost market sentiment

In October, the market was resilient regardless of the slowdown in business results in Q3 21. In our view, the accelerated vaccination progress and resumption of business in HCMC – a key economic hub – were the main market driver. Nearly 80% of HCMC citizens (above 18 years old) are fully vaccinated. Additionally, the significant drop in Covid-19 cases from its peak in HCMC from over 8,000 cases to less than 1,000 cases (as of 2 November) also indicated a good record in the Covid-19 battle.

We expect the pick-up in economic activities to continue in Q4. The government's support is also pivotal to kick start the economy – the Ministry of Planning and Investment has submitted a programme for economic recovery and development after the epidemic for about VND800,000bn (nearlyUS$35bn), 3.5 times higher than the government's support package in 2021. In our view, this package would strongly stimulate and accelerate the speed of recovery. The expected GDP growth in 2021-2025 period is forecast to be higher from this support package by reaching 6.5-7.0% compared with the previous estimate of 6.4-6.8%. With infrastructure investment being one of the key pillars of this package, we expect companies working in construction/materials/real estate will likely benefit in the next two years.

Short-term volatility is a risk

The market's rapid breakout since late October has driven valuation in many sectors to less attractive levels when accounting for decelerated Q3 21 earnings growth. In fact, the re-rating in many industries happened very quickly in a short period of time. While a few industries were catalysed by a surge in business profits, most benefitted from the abundance of capital flows in the market. As a result, we believe investors will now need to pick stocks more conservatively combined with a longer investment horizon to minimise the market volatility risks in the short term.

Valuations of some sectors such as agriculture, auto distribution and car equipment manufacturing have not changed much despite the sharp decline in business results. Similarly, the banking and logistics industries saw valuations fluctuate in a narrow band but net profit growth in Q3 21 was rather positive. Therefore, these are also two industries that could re-rate considering the forecast profit growth in Q4 21 as well as in 2022. While concerns about the asset quality of the banks post the fourth Covid wave were the main reason for the fluctuating valuations, we believe that banks have made strong provisioning in Q3, which in turn will support the industry's profit growth prospects in the coming quarters.

VN Index to move in the 1400-1500 level

Based on our coverage list, we predict 2021 EPS growth to reach 46% yoy and use an average three-year PE of 16.3x to come up with the 1500 points level. For the banking sector, we still believe some banks will have resilient business results, such as TCB, and better-than-expected earnings (CTG), and will partly support the market. Some of our top picks include: CTG, MBB and SCS.