Despite Russia’s war in Ukraine starting February and the first US Fed rate hike in March this year, the Vietnam stock market held up well relative to global markets but started to correct from mid-April. This was probably triggered by news that a few non-listed property companies were being investigated for irregularities in fund raising processes and use of its proceeds. Several people were also arrested in connection with these investigations and a few others for stock market manipulation charges. It did not help that the Vietnam market had done well in 2020 and 2021, with many investors incentivized to lock in profits. Many new retail investors exacerbated the correction because of panic selling. Margin calls also contributed to the damage.
The market bottomed in mid-May, then rebounded, before retracing to a marginally lower bottom in early July. Otherwise, the market was largely range bound from mid-May to end September. Recently, it fell through the July bottom. This was likely sparked by news that key executives at Van Thinh Phat and related companies were arrested for fraud. Van Thinh Phat is a non-listed company with diversified businesses including property development. Investors were worried that other property companies, perhaps including listed entities, may be charged for illegal activities too. There are also negative implications on banks that lend to the real estate sector. The prevailing weak global equity market sentiment also aggravated the market’s reaction to the arrest at Van Thinh Phat.
In contrast to Vietnam’s poor stock market performance YTD, the Vietnam economy has been recovering well. This was partly because of the low base, especially in 3Q21. For 9M2022, GDP grew 8.1% yoy, driven by consumption (21% yoy) and exports (+17.3% yoy). Corporate earnings are forecast to grow 14.6% in 2022 and 19.4% in 2023. While inflation has inched up largely on higher energy prices, they remained manageable and roughly within ranges of the years before the pandemic. With tighter liquidity, borrowing rates have also risen, but again are within averages before covid-19. The Dong has depreciated 3.9% against the USD but has performed better compared to other Asian currencies. On the other hand, market P/E valuation is now at 9.8x FY22 and 8.2x FY23. This is at more than -2SD the 10-year mean and was last seen in 2012.
Vietnam’s medium to longer term growth potential remains intact. Current valuations are very attractive. Therefore, we believe the present situation offers a buying window. We will add to existing positions and initiate new positions as the opportunities arise. Key risks are the potential economic slowdown in US, China and Europe, the Russian/Ukraine conflict and its global impact, and rising US interest rates.
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