Navigating Vietnam 2021 – A promising year ahead

• We are cautiously optimistic on the equity market in 2020F as most of the concerns have been largely priced in.
• We expect an 18% growth in the listed universe’s FY20F earnings and the VN-Index to touch 1,160 points boosted by the new Securities Law.
• Our top stock picks are VRE, MWG, VNM, DBC, HPG, GMD, MBB and FPT.

Vietnam will still be a standout economy, in our view 

We expect the economy to grow 6.8% in 2020F, underpinned by a 10.0% expansion in manufacturing, 8.5% rise in exports and 8.5% growth in domestic consumption. Inflation might pick up slightly on the back of hog price spike but will remain benign at below 3.2%, providing room for the central bank to ease monetary policy in 2020F. We see no downward pressure on the Vietnam dong in 2020F, facilitated by a trade surplus and strong FX reserve. Although FDI will still be the economic growth driver, we see Vietnam at the forefront of a local manufacturing take-off with a few mega projects in the pipeline.

Concerns have been largely priced in

Not aligning with Vietnam’s solid macro, the 2019 performance of the equity market has been relatively choppy, in our view. We see two key issues that have distressed the stock market, namely the slowdown of listed corporate earnings growth and the tightening of credit, which only spurred the buoyancy of high-yielding corporate bond market. We estimate listed corporate earnings will grow 18% yoy vs. 13.7% yoy in 2019. Although MSCI EM upgrade is still two years away, we expect Vietnam stocks to increase their weight in the MSCI Frontier Index, which will trigger new foreign inflows into the market.

We see four investment themes for 2020F

First, robust domestic consumption alongside high consumer confidence will propel the retail and food & beverages sectors. Second, the emergence of private investment, supported by pro-growth government policies could buoy manufacturing and technology. Third, logistics and industrial parks are broad plays given sustained FDI inflows. Last, a likely slight monetary easing will put banking in the watch list among the cyclical space.

We expect VN-Index to reach 1,160 points in 2020F  

We forecast a 20.7% rise for the VN-Index vs. end-2019; based on 15.3x FY20F P/E, which is equivalent to the current trailing P/E. Our sector picks are retail, F&B, manufacturing, and logistics. Our top stock picks are VRE, MWG, VNM, DBC, HPG, GMD, MBB and FPT. We see limited downside risks to the market, except for a global economic slowdown and further US-China trade war uncertainties. Market catalysts include earlier-than-expected MSCI EM upgrade, and the possibility of some noticeable private IPOs, such as Bamboo Airways, Vietnam Maritime JSC Bank, which could encourage further foreign investor interest.

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