The Vietnam stock market has had a strong performance in SGD terms with the FTSE Vietnam index gaining 35.7% year-to-14th December 2021. Indeed, it has outperformed MSCI Asia Pacific x Japan market (-2.2%) and MSCI South East Asia (-1.2%). The LionGlobal Vietnam Fund aims to achieve medium to long-term capital appreciation by investing in Vietnam.
Year-to-14 December 2021 – Vietnam (FTSE Vietnam +35.7%) vs Asia Pacific ex Japan (MSCI Asia Pacific ex-Japan, MXAPJ Index -2.2%) vs South East Asia (MSCI South East Asia, MXSO Index -1.2%), Indexed to 100 in SGD
Source: Bloomberg, 14 December 2021
While the stock market did correct in early July 2021 after COVID-19 cases spiked on the back of the Delta variant, it quickly recovered in spite of the strict lock down in 3Q 2021. While the lock down significantly reduced economic activity, with 3Q 2021 gross domestic product (GDP) contracting 6.2%, local investors continued to drive the market higher. This is because they seem to be looking beyond 3Q 2021 with optimism grounded on export strength and Vietnam’s positive medium term economic outlook. Their confidence is somewhat vindicated by a rebound in exports when restrictions were eased in early October 2021.
Exports grew 6.1% and 26.3% Year-on-Year (yoy) in October and November 2021 respectively; sending November 2021-to-date export growth to 18.3% yoy. While retail sales in 4Q 2021 so far has recovered sequentially from 3Q 2021, yoy comparison was still negative as Vietnamese incomes have been materially impacted by lock-downs, the most severe being in 3Q 2021. Even with these challenges, Vietnam’s GDP based on consensus estimates is still expected to grow 2.3% in 2021 because of the performance in 1H 2021 and expected strength in 4Q 2021.
Monthly exports % yoy (January 2018 – November 2021)
Source: Ho Chi Minh Securities, Vietnam General Statistics Office, November 2021
Monthly retail sales % yoy (January 2018 – November 2021)
Source: Ho Chi Minh Securities, Vietnam General Statistics Office, December 2021
Vietnam appears to acknowledge that strict lock downs may not be effective in tackling the pandemic in the medium to longer term. The government has signaled that Vietnam is unlikely to use lock down again as a strategy even in the face of higher cases and new variants like Omicron. If their resolve holds, we expect the economy to recover in 2022, with consensus forecast of 7.2% GDP growth. This will be driven by exports and government spending, particularly on infrastructure. Vietnam has also reopened parts of the country to foreign tourists and targets to fully open by 3Q 2022 as they expect to fully vaccinate its adult population by end 2Q 2022. As the economy recovers, income should rise and therefore domestic consumption should also improve. These should support corporate earnings growth next year. 2022 Price-to-Earnings of 14.5x is reasonable at +0.8x standard deviation of the FTSE Vietnam index’s 10-year mean. With this as a likely backdrop for next year, Vietnam’s stock market could potentially record another positive performance in 2022. Key risk remains economically detrimental measures that the government could re-impose to tackle the pandemic.
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