2H 2023 Vietnam Market Update

08 Sep 2023
Kok Fook Meng - Senior Portfolio Manager

As at 30 August 2023, the Vietnam stock market has returned +18.9% Year-To-Date (YTD) in SGD terms as measured by the Ho Chi Minh index. This was after a gain of +39.7% in 2021 and a correction of -35.5% in 2022, also in SGD terms. The correction in 2022 was triggered by the government’s arrest in April of company executives in a few property companies for fraud and bond issuance irregularities. This was compounded for much of 2022 by the high inflationary environment and the sharp hike in interest rates in September and October by the State Bank of Vietnam. With the correction, valuation for the overall market fell below 10x. At the end of 1Q23, the Vietnam government began communicating a softer stance on funding for the property sector and the State Bank of Vietnam also started to cut interest rates. Inflation has also started to ease at the same time. With this combination of easing property measures, lower interest rates, lessen inflationary pressures and undemanding valuation, Vietnam’s retail investors became emboldened and re-entered the stock market. They have been the key driving force for the market rally so far this year.

 

The combination of easing property measures, lower interest rates, lessen inflationary pressures and undemanding valuations have been the key driving forces for the market rally this year.

 

In contrast, the economic environment in Vietnam has not improved as many had hoped in the beginning of the year although the consensus view is that the country has bottomed in 2Q23. Exports, a major growth driver, have slowed and are expected to record their 6th consecutive month of Year-On-Year (YOY) contraction in August. Consensus therefore expects exports to be about negative 5% YOY for 2023. Consumption, while still positive YOY, has slowed in recent months but is expected to pick-up pace in August on the back of better sentiment in the stock market. However, consumption strength is not broad-based with the mid-to-high income consumers sustaining their spending power while the low-income population still faces challenges with lower or loss of salaries. On the positive side, tourism has recovered, with foreign tourist arrivals reaching approximately 70% of pre-COVID levels. Foreign Direct Investment (FDI), both disbursements and new registrations have been positive YTD, and both are on track to achieve consensus estimates of 7% YOY growth.

 

In summary, Vietnam’s near-term economic outlook remains challenging even as investors appear to be looking pass current conditions to a recovery in 2024. However, any improvement should be premised on a stronger economic environment in Europe, US, and China, which is not certain at this juncture. The ongoing war in Ukraine also poses downside risk with its potential negative impact on commodities prices and the geopolitical impact on global stability and economic growth. In the medium to longer term though, Vietnam’s growth potential remains attractive. It is at an early stage of its economic expansion path relative to other more developed Asian countries. We believe it has the key ingredients for further progress, namely (1) a stable government (2) conducive policies for foreign direct investments and (3) a young, educated, motivated and sizeable population. These will help drive both foreign and domestic investments, urbanisation, and consumption to sustain economic and corporate earnings growth. Furthermore, Vietnam’s current valuation at 9.3x FY24 Price-to-Earnings (Ho Chi Minh Index) is at -1.5x standard deviation of the 10-year mean. In other words, the market remains attractive for the long-term investor even after almost 20% of gains YTD.

LIONGLOBAL VIETNAM FUND

The LionGlobal Vietnam Fund aims to achieve medium to long-term capital appreciation by investing in Vietnam. The Fund will invest in companies listed in Vietnam and other companies listed elsewhere that have operations in, or derive part of their revenue from Vietnam and the Indo-China region. The Fund may also invest in short-term fixed income instruments listed or traded on recognised markets within the Indo-China region.

For more information about the Fund, visit https://www.lionglobalinvestors.com/en/fund.html?officialNav=LGVS

All data are sourced from Lion Global Investors and Bloomberg as of 30 August 2023 unless otherwise stated.

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