espite the macro-economic instabilities in the world, Vietnam’s economy has still shown positive signs such as the healthy GDP growth and expectedly continuous foreign capital inflows to stock market. In addition, rating agencies assess Vietnam as the country enjoying the most tangible benefits from the US – China trade war with labor-intensive sectors such as fishery, textile and garment.With regard to monetary policies, the State Bank of Vietnam has made contractionary moves with an attempt to ease pressure on foreign exchange rates since mid-2018.
What gives rise to concern among investors is the year 2019 with a range of good macroeconomic news could see the growth of the stock market. We summarize some assessment of 2019 stock market by major securities firms for investors’ reference.
According to MBS Securities, the drives for growth of Vietnam’s stock market in 2019 come from (1) higher economic growth as compared to other countries in the region and EM, (2) positive forecast corporate profit growth; (3) positive capital inflows to Vietnam and (4) market rating upgrading potentials.
Risks to Vietnam’s stock market arise from external factors such as FED interest rate hike, China economic recession, trade war or the Yuan’s issues.
A plus point is that Vietnam’s stock market is fairly valued after major corrections with 2019 P/E forward at 13-14x. Moreover, Mr. Son further states that it is likely to expect a year of rebound after a year of major corrections.
The MBS expert considers profit growth as the key factor to retain the cash flows in the market. Liquidity remains relatively low, which is however derived from the coming Tet holiday and could bounce back after Tet.
In 2019, the market will continue seeing divestment of big firms such as VGC, ACV…, which facilitates the cash inflows to the market. Furthermore, market rating upgrade will be also in the spotlight in 2019. Vietnam is currently placed on the FTSE Russell watch list and expected to be upgraded to EM. However, the top story is being on the EM upgrade list of MSCI. In an attempt to set to merge 2 stock exchanges and reform the law on securities by the Ministry of Finance and State Securities Commission, we could expect MSCI rating upgrade criteria to be fully met within this year or at the beginning of next year. This is the key factor for foreign funds to approach the Vietnam market.
BIDV Securities JSC (BSC) has recently released downgrade of real estate sector to “neutral” from “outperform” in 2019.
According to BSC, the launching progress of projects tend to delay to 2019 instead of sticking to the initial schedule in 2018 due to legal factors (construction permit).
In specific, some projects planned to launch in 2019 such as Vincity Grand Park Q9 – VIC (expected Q1/2019), Gem Riverside – DXG (expected Q1/2019), Hermosa – KDH (expected Q2/2019) and Akira City – NLG (expected Q1/2019).
In the meanwhile, in 2019, real estate credit will be strictly controlled in accordance with Circular No. 16/2018/TT-NHNN. Accordingly, from 2019 on, commercial banks are permitted to use only 40% of short-term deposits for medium- and long-term loans rather than 45% in 2018. This will cause difficulties for real estate developers in mobilizing investment capital as Vietnam developers are heavily reliant on loan credit and customer advances.
Moreover, Vincity will make major contribution to the number of officially launched apartments in 2018. VHM is currently carrying out 3 projects with a total of 132,500 apartments during 2019 – 2022 period, of which 2 projects in Hanoi (89,000 apartments) were launched at the beginning phase and in Ho Chi Minh City (43,500 apartments) will be launched from 2019 on.
BSC states that this will lead to project progress to lag behind the initial plan and real estate sector’s business result growth for the 2019 – 2020 period tends to slow down. BSC forecasts real estate sector’s business result growth will slow down as compared to 2019 mainly due to (1) Lack projects to be launched during 2019 – 2020; (2) High reliance of profit growth on extraordinary income, mainly from project transfer; (3) That the increased forecast lending interests and credit control will put pressure on developers and home buyers.
In 2019, BSC selects companies based on the following criteria: (1) Large clean fund readily available for launching in 2019, which ensures accounting for profits for the 2020 – 2022 period; (2) Register the healthy profit growth derived from projects to be launched in 2019. Stocks recommended by BSC includes VHM, NLG, HDG and KBC.
According to the 2019 market potential report by VNDIRECT, cash inflow will be less attracted by newly listed stocks but Bluechip stocks with leading position in the sector and healthy financial basis instead.
Positive programs of Vietnam’s export sectors could continue thanks to drive of free trade agreements and implications of trade war, which could shift investors’ focus on Fishery, Textile and Garment, Agriculture, Industrial zone real estate and Logistics sectors.
From perspective of market capitalization, mid-cap stock group could be considered but selected. Although market breadth is usually contracted at the end of the markets, rising prices and cash inflows will focus on large-cap stocks with high liquidity and Bluechips.
VNDIRECT states that the end of price-oriented investment strategy will result in the emergence of bottom-up investment strategy. This strategy will prove more effective with quality-but-ignored mid-cap stocks that are highly valued, especially stocks with stable growth.
From Mirae Asset’s perspective, though the world’s economy and market have certain uncertainties, MAS securities companies believe that the market is stable to some extent with interest rates and foreign exchange rates being kept stable for enterprises to make a profit. This year, MAS recommends that despite market ups and downs, investors should focus on sectors and companies with stable growth in 2019.
Take Seaport sector for example. Total exports in 2018 reach USD 482 billion, up by 12.6% over 2017 and expected to grow by 2-digital amount in 2019. According to free trade agreements such as CPTPP, FTA with EU, tax rates will be reduced to 0% from 2019 on, so exports will significantly increase. CPTPP will give competitive edge for Vietnam to expand and exploit the members’ market. We find that the favorable geological location at the Cam River’s downstream area enables GMD and VSC to have competitive advantage to grow its revenues.
Or to textile and garment, exports increase by 2-digital amount in 2018 and Vietnam is accounting for about 5-6% of total textile and garment all over the world, so there is still huge room for growth. Vietnam has signed free trade agreements, which will open up a number of opportunities in the future. We assess TCM as the healthy stock of the sector.
Fishery sector is also the one we expect to grow rapidly. Vietnam’s major export markets include US and China. US-China trade war will favorably influence fishery companies, which create expectation of growth in both of the key markets.