The Ho Chi Minh Stock Index (VNINDEX) has fallen 19% in US Dollar (USD) terms since the start of 2022. The three factors that we had highlighted previously remain the key concerns for investors.
To recap, they are:
- Concerns about the higher global interest rate environment and its potential negative impact on financing cost, asset valuation and emerging market currencies.
- Concerns about higher global inflation and its potential negative impact on economic growth.
- Vietnamese authorities have arrested senior executives in a few property and securities broking companies for fraudulent bond issuance and share price manipulation. These included FLC Group, BOS Securities and Tan Hoang Minh Group.
Vietnam’s decline in 2022 was primarily triggered by the steep fall in global markets (e.g. the Nasdaq index was down about 27% and S&P 500 index has declined 18% in USD terms). Vietnam’s weakness was driven by selling from retail investors and was exacerbated by forced selling because of brokers’ margin call. The Vietnamese market performance contrasted with strong 1Q22 earnings released by listed companies and their generally positive 2022 outlook guidance. Vietnam’s 2022 macro backdrop also remains supportive of corporate earnings, with consensus GDP forecast of 6.8%, manageable inflation of 3.4% and a current account surplus of 1.3% of GDP (which should support a stable VND). Consensus is mixed on policy rate but we expect the State Bank of Vietnam to keep policy rate unchanged at 4% this year to support Vietnam’s economic recovery from the covid-19 pandemic.
Valuation for the Ho Chi Minh Stock Index has moderated further and is now trading at 11.3x Price-to-Earnings (-1.3x standard deviation of its 10 year mean P/E) for 14% Earnings Per Share (EPS) growth in FY22. Vietnam continues to offer growth opportunities in the longer term and we believe that the market correction offers investors a chance to add or initiate a position in Vietnam equities.
The key downside risks remain the impact of the Russian/Ukraine conflict on global economic growth and investor sentiment in the short term.
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