The Vietnamese market caught a dose of irrational exuberance in H1 2018 with the VN-Index reaching an all-time high of 1,204 in April 2018 and a trailing P/E of 22x. However, we believe the subsequent 25% correction leaves Vietnam’s robust growth story very reasonably priced. We set a year-end 2019 target for the VN-Index of 1,050, implying 18% projected upside (and 20% TSR) from the 2018 closing level of 892.
US stock market saw its worst month in nearly a decade. US benchmarks such as the Nasdaq Composite and Russell 2000 entered bear markets, while the Dow Jones Industrial Average and S&P 500 were just a step away from bear territory before Christmas. Though US equities managed to bounce back in the last few days of the year, the S&P 500 and DJIA still sank 9.2% and 8.7%, respectively, in December, the worst monthly performance in a decade.
Market rebounded slightly from lows. After hitting a 12-month low at the end of October, the VN-Index bounced back slightly by 1.3% in November. Solid earnings results supported stock prices, but market sentiment remained cautious amid uncertainties in US trade policy while falling oil prices continued depressing the oil & gas sector.
October was one of the worst performing months for the global stock market. The S&P 500 fell 6.9%, its poorest monthly performance in seven years. MSCI EAFE dropped 8.0%, the sharpest decline since May 2012 while MSCI EM sank 8.8% (of which South Korea’s KOSPI Index saw its worst month since October 2008). Meanwhile, MSCI FM posted a small decline of 3.5% during the month.
VNI recorded a second consecutive month of recovery. After retreating from psychological resistance at 1,000, the VNI gradually resumed an upward trend, closing September at a three-month high of 1,017, up 2.8% MTD. Small and mid-cap stocks made a large contribution to the increase with the VN-Small and VN-Mid jumping 6% MTD and 4.5% MTD, respectively. 11 out 12 sectors posted gains, led by the utilities sector, which was mainly driven by GAS (+12.3% MTD) amid soaring global crude oil prices.
VNI recovered after four-month losing streak. The VNI rose 3.5% in August, with 10 of 12 sectors posting gains, after four consecutive months of declines. Meanwhile, the HNI also increased 6.3%. The main drivers during the month were the utility, energy and banking sectors.
Market struggled with cautiousness. In the first haft of July, the VN-Index plunged 7.1% to an eight-month low of 893 after the Trump Administration threatened to impose new tariffs on USD200bn of Chinese imports. A step closer to a potential trade war sparked the USD/VND exchange rate to surge 1.5% in July and 2.5% YTD, though the SBV effectively used its foreign reserves to stabilize the FX market. Some companies disclosed good Q2 earnings, which helped the market recover but with a quite
Manufacturing led strong economic growth. Vietnam recorded 7.1% YoY GDP growth in H1 2018 led by 13% growth in the industry and construction sector. This strong result was reflected in June’s PMI, which came in at 55.7 and has been above 50 since March 2016. We maintain our forecast for 7.0% GDP growth this year. FDI continues to be the long-term growth driver. 2018 investment grew off of 2017’s already high base.
Even after rising 44% in 2017 to USD36bn, registered FDI was able to rise 5.7% YoY
Market rebounded from lows but sank again. After recovering 12.5% from a five-month low of 932 recorded at the end of May, the VN-Index pulled back again in the second half of June. The selling pressure stemmed from a range of events including: 1) the US Fed accelerated its rate hike pace from three times to four times this year, 2) the US President announced tariffs on USD50bn worth of Chinese goods, taking effect from July 6, which escalated global trade tensions.