Strategy Report

Strategy Report
SSI Webinar Summary: “Gateway to Vietnam: Trump & Tarriffs”

SSI recently hosted the first webinar in the "Gateway to Vietnam" series for 2025, focusing on the global economic landscape and its impact on Vietnam. The discussion provided insights into geopolitical shifts, economic policies, and Vietnam's strategic position in the evolving global market.

For the background, recently, President Trump imposed new tariffs on Canada, Mexico, and China for non-economic reasons, such as homeland security and health concerns. In response, Canada agreed to stricter border controls while China announced higher tariffs on U.S. goods.

The panel was hosted by Thomas Nguyen (Chief Global Markets Officer, SSI) and included speakers such as Frank Kelly (Founder and Managing Partner, Fulcrum Macro), Eva Yi (Chief Economist, Huatai Securities), and Hung Pham (Chief Economist, SSI).

In the webinar, panelists expressed optimisim and opportunities for Vietnam in Trump 2.0 presidency term, given the strategic position of Vietnam as a connecting country to benefit from both US and China relationships. The key growth drivers for Vietnam in 2025 remains consumption recovery and public investment, with the government setting ambitious double-digit growth target in a favorable case scenario.

With both positive global opportunities, strong domestic growth momentum and potential market status upgrade by FTSE, we remain positive for Vietnam market as a whole, with VN-Index 2025 target of 1,450 points at the end of 2025, in line with forecasted NPAT growth of 16.4% YoY for the stock under our coverage.

06/02/2025

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2025 Vietnam Market Outlook: The New Era

From our vantage point, 2025 looks to be a year of catalysts that unfold: would-be growth events that have been pent up after so much waiting and longing for changes that have created past concerns and doubts about the capability of Vietnam to address the key economic issues at hand.  To that end, the new leadership has been tasked with the challenge of reviving an economic growth supercycle to test their mettle. In an interview on the last day of 2024, the General Secretary of the CPV To Lam mentioned that the country is now stepping into a new era: the era of the nation’s rise.  The top priority in this new era is to successfully achieve the strategic goals, turning Vietnam into a developing nation with a modern industrial base and upper middle-income by 2030. 

The new era means that we might need to prepare for the Unexpected.  The reforms that are being implemented starting from late 2024, including the Vietnamese government’s comprehensive institutional reform, determination in accelerating public investment in infrastructure, and removing the painful issues in the property sector, if successfully navigated, are the three domestic variables that can be uncoiled to spring forth growth in our view.  The country is in need of capital for its overarching development plan charted out for the next 5 years, and we believe these are shaping the foundation for the stock market to spring forth in 2025.

Following the 2 big themes mentioned above, our Top 10 calls for 2025 include HPG, MWG, FPT, DPR, CTD, NT2, CTG, TCB, ACV and KDH.

07/01/2025

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Update on the Non-prefunding solution (NPS): Potential trading development on the new platform

Given the SSC chairwoman in the most recent conference hinted for a potential implementation of KRX in 2025, the report pointed out a comparison of KRX and current trading platform.

We emphasize the superiority of the KRX trading system over the medium and long-term to cater to all the needs for Vietnam’s capital market development though at the beginning, we do not expect there will be a lot of advance technology from the KRX system to apply, but rather more of basic stock trading application.

There are still some difficulties which in turn might result in delays for KRX implementation, including the longer time for testing and incorporating this new system to market

Another question is on whether the KRX system implementation might affect on the FTSE Russell upgrade decision or not. KRX is just an extra bonus in the eyes of an FTSE evaluation, rather than a critical deciding factor.

27/12/2024

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Update on the Non-prefunding solution (NPS): 1-month review

Following the introduction of Circular 68/2024 on non-prefunding solutions for foreign institutional investors (FIIs), investors have positively received the regulatory change with a moderate usage, accounting for about 35% of foreign buying transactions and no failed trade reported.

The practical use of NPS are to reduce funding burdens and possible FX risks while there are still some difficulties regarding paperwork procedures, communication issues and capacity usage.

FTSE Equity Country Classification Advisory Committee is scheduled to meet in January 2025 and in our best-case scenario, FTSE could announce the possible inclusion in March 2025, with actual implementation potentially starting in September 2025.

05/12/2024

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SSI Webinar Summary: “Gateway to Vietnam: China’s Stimulus – Flows and Fundamentals”

SSI recently hosted a webinar titled “Gateway to Vietnam: China’s Stimulus – Flows and Fundamentals” to analyze the fundamentals of China’s stimulus package and its impact on global liquidity, particularly in Vietnam. The panel featured Thomas Nguyen (Chief Global Markets Officer, SSI), Phat Cao (Director of Sales and Trading, SSI), Ning Ding (Executive Director, Huatai Securities USA), and Xiaoyu Chen (Huatai Financial Holdings).

Summary of China’s Stimulus Package:

  • Reserve Requirement Ratio (RRR) Cut: The People’s Bank of China (PBOC) reduced the RRR, injecting one trillion RMB into the market.
  • Mortgage Rate Reduction: Existing mortgage rates were cut by 50 basis points, increasing disposable income for Chinese citizens.
  • Innovative Programs: Introduction of a 300 billion RMB relending program and a 500 billion RMB swap program, with potential for expansion.

04/10/2024

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Quick Update on Non-prefunding solutions (NPS)

At long last, the Ministry of Finance (MoF) issued the 4-in-1 circular (Circular 68/2024) offering non-prefunding solutions to foreign institutional investors, which will be effective from Nov 2nd 2024. The VSDC, brokerages, custodian banks, and investors are currently working to finalize the paperwork process

It marks a step closer to meeting the FTSE Russell’s EM upgrade requirements. With recent positive recognition of FTSE Russell on Vietnam’s stock market improvements, September 2025 will be a likely timeline for the EM upgrade decision.

With Vietnam net market capitalization of $44 bn (by FTSE Russell estimate), total inflows to Vietnam could be around $1.7 bn right after the inclusion of FTSE Russell brought on by the rebalancing catalyst, and there might be more on the way, thanks in large part to inflows from other active regional funds.

Top beneficiary stocks: VNM, VHM, VIC, HPG, VCB, SSI, MSN, VND, DGC, VRE and VCI.

18/09/2024

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Update on the Non-prefunding solution (NPS)

In late July, the SSC released the 3rd version of the draft circular offering NPS - a quick fix to meet FTSE Russell’s EM upgrade requirements and we expect its approval by the end of September.

Non-prefunding solution (NPS) is basically payment support provided by brokers, allowing foreign institutional investors to buy equities on T+0 and get funded on T+1 to T+2.  Given the regulation fix, NPS will be executed by the end of this year.

This timing could allow FTSE Russell to recognize Vietnam’s improvements in September 2024 reclassification announcement. After that, FTSE Russell might take around 6 months to gather investor feedback, making September 2025 a likely timeline for the EM upgrade.

23/08/2024

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2H2024 & 2025 Stock Market Outlook: A struggle to build up strength

The VNIndex capped off July with a 10.8% increase since the beginning of the year, which is not a bad performance when compared to other regional markets.   However, investor sentiment seemed to be weaker in the short term. Liquidity decreased -27% MoM in July, and averaged VND 21 tn (USD 836.6 mn) on HOSE.  Local investors became more worried about potential economic slowdown of large economies such as the US or China, and were wary of geopolitical risks, while there is still a large need for domestic debt/bond rollover in 2H2024.  Regarding the long saga of the property sector and banking sector, although demand for property came back earlier (due to the expectation that property prices might continue to rise in the coming time), buyers are picky this time and only chose real estate within projects with clear legal status.  On the other hand, projects with licensing issues show not much progress, therefore remain as lingering risks for banks’ asset quality. However, our view for 2025 will be brighter at least on the following legs: (i) we believe that the currency will be more stable in 2025 than it was in 2024 with no depreciation expected; (ii) Upgrade prospects to EM remains a very real catalyst, and therefore foreign inflows could be improved; and (iii) Higher overall earnings growth in 2025, thanks to stronger & broad recovery among the sectors, driven by gradual recovery of export and domestic demand. For stocks within our coverage universe, NPATMI is estimated to increase by 13.6% in 2024 and 20.8% in 2025.  We might start seeing a handful of sectors posting strong growth in 2H2024 such as retail, export–related sectors, and even some property developers and banks.  While we in general maintain the VN Index target for 2024 (around 1,300 or slightly higher), we expect higher upside in 2025 at 15-20%, in line with earnings recovery.

07/08/2024

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2024 Vietnam Market Outlook: Ride the Dragon

The stock market is influenced by both flows and fundamentals.  This year, it seems that there will be a conflict between flows and fundamentals which could lead to different market reactions.

On the fundamental side, the year after a “buy-time year” would require a significant recovery otherwise there will be even larger challenges for the financial system. We believe that such a recovery will come but more likely during the latter half of 2H of 2024, backed by stronger exports due to lower global interest rates and improved consumer confidence.  Domestically, all eyes are on the property sector recovery as developers cannot buy much more time and bank property exposure remains high.  If household wealth is trapped in property and corporate bonds for much longer, confidence will erode. In short, we believe that both retail and foreign flows are favourable for the stock market this year, while fundamentally the fear of “high uncertainty” prevails.  This feeling of “high uncertainty” likely will be higher during 1H24 and ultimately gradually improving toward year-end. 2024 is expected to be a year of high volatility, with strong rally followed by a deep correction.  We recommend buying the market on the dips. SSI Research believes that fair value for the VNIndex is 1,300 pts for 2024. In terms of investment themes, we believe earnings growth will be the key driver for the outperformance of stocks this year.  Besides, in the context of extremely low interest rates, we also see dividend yield to be an attractive factor.

07/02/2024

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Vietnam Strategy Note – May 2023: Recent development in banking and property sectors and implication on equity market

We feel the urgency to write an Update on Vietnam Equity Strategy after the recent multiple supporting measures from the Government that could change the banking and property sectors’ prospects in 2023-2024 and at the same time, have impact on the equity market. The State Bank of Vietnam is quite proactive in the current context, as it’s the first central bank in the world to pivot to adopt an easing stance. The easing monetary was not just reflected through rate cut, but also via a number of guideline circulars, targeting corporate bond and debt restructuring framework for banks. The current strategy to buy more time for both the banks & developers/bond issuers was clearly in play, while the market waited for legal status of property projects to have progress. With recently issued regulations, Vietnam banks possess the necessary tools and mechanisms to mitigate the impact of negative economic conditions in general & specifically the property sector across their financial statements. However, we believe banks shall be pondering on the clients eligible for loan restructuring based on their recovery ability in 2H24. Currently, it seems that the regulators are determined on solving the problem on a case-by-case basis, rather than a blanket regulation applied to all, with additional scrutiny towards banks with a high degree of exposure to the property market. Hence, debt restructuring might also be applied on a case-by-case basis.

23/05/2023

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Vietnam 2023 Strategy Note: Pounce Selectively

2023 will be a key year to test the strength of Vietnam’s economic fundamentals.  We believe that Vietnam could deliver an encouraging economic performance of 6.2% for 2023, which is impressive given that the world is in the midst of a significant slowdown trend. Having space, the government has expanded fiscal policy and the private sector is attracting FDI. Monetary policy should remain prudent, but likely less aggressive than during 2022.  Slowing global demand remains a major near-term risk to our in-house outlook, but a more serious tail risk would be liquidity/default risks and policy risks.

27/01/2023

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Vietnam 2H2022 & 2023 Outlook: Moving ahead of the uncertainties

In 2H2022, local investors continue to worry about external risks, including US inflation, Fed rate hikes, and a global recession, all of which could result in: (1) weaker export turnover, placing more pressure on the VND; and (2) weaker domestic demand as a result of high inflation. While 2H22 macro data exhibit a rosy combination of low CPI and high GDP growth off of a low base 2021, investors are now faced with a 2023 filled with uncertainty. In 1H23, we could witness a CPI pick up, while GDP growth could experience a slowdown. High CPI could finally show up in data from late 2022, due to the adjustment of public products and services (electricity, tuition fees, and healthcare fees). The Vietnamese government’s priorities are tackling inflation first, followed by growth when inflation risk fades. We believe that 2023 will be a year of investment-driven growth. Stimulus packages could accelerate in 2H22, but we expect the majority of the packages to be disbursed in 2023. On the other hand, FDI remains the crucial driver to Vietnamese growth. Both factors should be consistent investment themes for Vietnam over the long-term.

29/07/2022

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Vietnam Market Outlook 2022: The Tiger's Eye (full report)

2022 likely will be known as the Year of the Water Tiger. While it might not be an easy year, we will need to work very hard to achieve the desired result. Hard work could pay off though, and result in a positive and confident 2022, but the year will need a strong guiding hand.

Divergence in the policy mix would differentiate Vietnam from the rest of world. Vietnam will be in the cohort of countries which look to delay monetary policy tightening for one more year while boosting fiscal spending further. Inflation risk is real, but the cautious reopening (due to the Omicron variants) might delay the price increase a bit further, leaving room for policy manuevering for a while.  Anyway the CPI should be looking uglier from 2Q22, and we expect interest rates to bottom in 2022, the prospect of rate hikes depends on the speed of recovery.  Under our base case, we still do not expect interest rate increases to be significant in 2022, having only a limited impact on the business environment.

31/01/2022

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Vietnam Market Outlook 2022: The Tiger's Eye

2022 likely will be known as the Year of the Water Tiger. While it might not be an easy year, we will need to work very hard to achieve the desired result. Hard work could pay off though, and result in a positive and confident 2022, but the year will need a strong guiding hand. 

Divergence in the policy mix would differentiate Vietnam from the rest of world. Vietnam will be in the cohort of countries which look to delay monetary policy tightening for one more year while boosting fiscal spending further. Inflation risk is real, but the cautious reopening (due to the Omicron variants) might delay the price increase a bit further, leaving room for policy manuevering for a while.  Anyway the CPI should be looking uglier from 2Q22, and we expect interest rates to bottom in 2022, the prospect of rate hikes depends on the speed of recovery.  Under our base case, we still do not expect interest rate increases to be significant in 2022, having only a limited impact on the business environment.

28/12/2021

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Vietnam 2021 Strategy: The Ox pulls through the storms

For 2021, we expect that there will be 3 main themes applicable for Vietnam: (1) recovery & reflation; (2) Beneficiaries from low interest rate environment and (3) Infrastructure upgrading.  We put forward our forecast that Vietnam 2021 real GDP growth will revitalize back to around 6.5% YoY, (higher than the government’s target of 6%).  Growth will start to accelerate from 2Q21, and continue in 2022 (back to the 7%++ range). In overall, earnings growth for companies under SSI Research coverage is projected at +26.4% on average after declining -15% in 2020. As of Dec, 31st 2020, Vietnam’s market 2021P/E is 15.5x.Looking at historical P/E for Vietnam market, we choose to refer to the P/E range in the last 3 years as this is the period of time when Vietnam stock market has grown strongly in terms of scale and become much more investible for foreign investors in the context of a strong economic growth cycle. Market P/E median during 2018-2020 is 16.4x and the highest level of market P/E recorded at 21.6x on 22 March 2018. Given the market P/E of 15.5x, our observation is that currently most sectors’ valuations have come back to pre-Covid levels, even after taking into account a strong earnings rebound in 2021. However, we must also acknowledge the fact that 2020-2021 could be like no other years to date, especially given the abundant liquidity situation and an increasing role of first-time retail investors entering the fray. Furthermore, Vietnam market’s valuation is still not demanding in comparison with other regional peers.  In our base case, we use target P/E of 18x for VNIndex in 2021 (equivalent to an upside of 16.1% or 1282 pts).

The key risk to our growth scenario is inflation risk as it could hamper the low interest rate environment.  We expect to see a 1-2% appreciation for VND in 2021. Our Top 5 Call for 2021 include MWG, FPT, HPG, TCB and SZC. Our mid & small cap ideas for 2021 include STK, QNS, PLC, NLG, SZC, IMP, HT1 and IDC.

21/01/2021

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