Navigating Vietnam 2H23 – Enough sunlight, flowers will bloom

We believe that the main growth driver for Vietnam’s economy in 2H23 will mainly come from the government’s economic support policies. Therefore, Vietnam’s key investment topics in the second half of 2023 will be closely related to an easing monetary policy as well as an expansionary fiscal policy that the Vietnam’s government has implemented since the beginning of this year.

We expect Vietnam’s economy to accelerate recovery in 2H23 with a year-on-year growth rate of 7.1% yoy in 2H23, thus lifting the 2023 full-year GDP growth to 5.5% yoy. The recovery momentum in the second half of this year could be underpinned by the expansionary fiscal policy and the lower interest rate environment.

We expect deposit and lending rates to maintain a downward trend in 2H23. In addition, we also see a number of factors that could put more pressure on the VND exchange rate in 2H23, including (1) The Fed funds rate is likely to remain at a peak until the end of 2023, while the SBV intends to lower interest rates to support growth, (2) Domestic inflation could pick up from late-3Q23.

“Enough sunlight, flowers will bloom”. We believe that the stormy periods of the economy are gradually passing, and instead, there are rays of sunshine showing signs of recovery. Thereby, a series of supportive policies from both monetary and fiscal policies are putting the economy on the right track for a new cycle of growth. For the stock market, we see that cash inflows have improved, showing confidence in the market returning after a period of gloom. Hence, we believe this is the time for investors to evaluate and pick investment opportunities for the time to come. “Enough sunlight, the flowers will bloom” is the message we want to deliver through this report.

With the expectation that deposit interest rates would continue to decrease in the coming months while earnings of listed companies could recover from 3Q23 onwards, Vietnam’s stock market deserves to be rerated with higher valuation ratios. Although EPS of the listed company experienced the negative growth in 1H23, we still expect business results of those companies to recover in the period of 2023-2024 thanks to a series of supportive policies from the government. We forecast the net profit growth of companies listed on HOSE will grow by 10.4% and 19.3% for 2023 and 2024, respectively. In base case scenario, we expect the VN-Index to reach 1,300 points within 2H23, translating into 13.3x of FY23F P/E (-1 standard deviation of 10-year average P/E). Downside risks include: indirect investment withdrawal in the context of Fed maintaining high policy rates and (2) stronger-than-expected US and European economic recession.

We identify two key investment themes for 2H23. First, lower interest rates have a positive impact on a wide range of industries. Lower lending interest rates will help businesses reduce capital costs, especially in industries with high net debt such as Construction & Materials and Property. The Banking sector also benefits as deposit rates often fall faster than lending rates. Besides, it is impossible not to mention the Securities sector when this is an industry that benefits from both input (reducing capital costs) and output thanks to improved market liquidity and increased demand for margin when the interest rate level fell. Second, public investment as part of fiscal expansion remains a promising story in the second half of 2023 and beyond

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