Monthly Market Outlook

Equity markets experienced a difficult month in February, as sudden tension between Russia and Ukraine took hold. In March, this is still a key event to watch, as the evolution of the conflict remains uncertain. Any peaceful resolution would ease the level of volatility in the global equity market. For now, the obvious impact on economies is food and energy price hikes. Whether central banks react to higher energy prices by increasing the magnitude of interest rate hikes to combat inflation or reduce the pace of tightening to support economic growth remains unclear. In Vietnam, rising inflation is expected to come sooner, but the government might still be able to maintain acceptable price levels (the most recent measure is cutting 25% the environmental tax on gasoline). The Fed’s upcoming rate hikes have somewhat been felt in the air, as the US Dollar started to strengthen. However, we do expect Vietnam’s trade balance to improve in the coming months, followed by the full reopening of the economy.

Update on SSI Research Top recommendation: This month, we add HPG to our recommended stocks list.

For full year 2022, a divergence of policy mix is likely to differentiate Vietnam from an increasingly wide swath of countries who’ve their policy pivot set toward tightening. Vietnam, on the other hand, should be amongst a cohort of countries which look to delay monetary policy tightening for another year, while boosting fiscal spend. Combined with a stable currency, we expect inflows to return to Vietnam over the near-term.  Macro data for January continues to exhibit the underlying strength of the Vietnamese economy. Both industrial and service sectors grew well as lockdown restrictions have eased, releasing pent-up consumer spend and a recovery in tourism prior to the Tet holiday. Notably, retail sales of goods and services posted growth of 1.3% YoY, the first time since May 2021. Overall, the 2022-2023 stimulus package approved by the National Assembly stood out as January’s key highlight.

In January, Q4 corporate earnings will come into focus. Based on our estimate, Q4 earnings of companies under  coverage should  grow at 13.6% YoY in Q4, decelerating from the first three quarters of 2021 (Q1: 63.3%, Q2: 54.7%, Q3: 24.3%). However, we might see some companies’ earnings post all-time highs in Q4, such as fertilizer, chemicals, and shipping. Bank earnings should also be more positive than initially expected in Q4 2021.

This month, we add CTR, DXG while remove HPG, TPB and PTB from our top call list.

Q1 earnings and AGM season likely will be key catalysts for April, as investors seek proof of a tangible economic recovery. The banking sector exhibited surprisingly strong earnings growth, majority of banks under our coverage posting greater than 50% YoY increase in PBT while VCB and VPB have generated over 25% YoY growth. Steel companies (HPG, HSG, NKG) have also achieved spectacular growth via decent demand and higher steel prices.  The beaten down sectors such as real estate (DXG, KBC) and oil & gas (PLX, BSR, OIL) have witnessed massive earnings rebounds.  As such, corporate earnings are well on track toward recovery. 

Q1 earnings will be the main focus to watch in March. Corporate earnings have consistently posted steadily rising results along a recovery trajectory ever since the trough in Q2 last year. With a low base set in H1 2020, we expect companies to post strong earnings growth in H1 this year. Positive macro data in the first two months of the year has been encouraging, and we anticipate Q1 GDP to also be higher on a YoY basis. The rise in commodity input prices should not immediately be reflected into Q1 margins, as companies normally have hedged and secured their material contracts in advance.

At the end of Feb 2021, the P/E of the market (based on SSI coverage) was 15.8x, offering a 14% upside to our target 2021 market P/E of 18x. Vietnam’s P/E is more attractive than regional peer when considering 2021 earnings growth (21.7%, based on SSI coverage). As such, future corrections should provide opportunities to accumulate names with solid fundamentals. In terms of preferred sectors, we remain constructive on banking, property, steel, and logistics at the moment, while we recommend investors to tactically increase exposure to energy when the opportunity presents itself.   

Correction is an inevitable feature of markets, especially after such a long and drawn out rally. Although we hold the firm belief that Vietnam has done well in the face of the pandemic and will continue to do so (as vaccines are expected to be available and rolled out to market in Vietnam starting Q1 2021), the stock market still necessitates close monitoring, especially with the Lunar New Year holiday ahead and mobility across the country is at its highest.   When there is no longer a rising tide to carry all boats, inflows tend to be more selective in terms of particular sectors and stocks. At the end of Jan 2021, the P/E of the market (based on SSI coverage) was 14.2x, offering a 27% upside to our target 2021 market P/E of 18x. Vietnam’s P/E is more attractive than regional peer, especially when considering 2021 earnings growth (25%, based on SSI coverage). As such, corrections should provide opportunities to accumulate names with solid fundamentals. In terms of preferred sectors, we like banking, property, steel and IT the most at the moment.

For years to come, investors will look back at 2020 as one of the most turbulent years in modern history, with the Covid-19 pandemic causing the largest shock to the global economy in decades. Unprecedented fiscal and monetary responses have fueled massive liquidity driven rallies in the share markets, while rapid vaccination developments have increased the likelihood of a near-term recovery. The Vietnamese stock market was characterized by a short-lived bear market for just the month of March, and then recovered at a velocity that defied most expectations for the remainder of 2020 - closing the year at its highest level since April 2018.