Navigating Vietnam 2H21-2022: Time to double down on quality

Rising vaccination rollout to provide a significant boost to the global economy in 2H21 as economic reopening gathers pace. Being the largely net exporting economy, Vietnam is well-placed to reap the benefits from global demand recovery.

As 1H21 performance of Vietnam macro fundamental has heralded a couple years of recovery, we expect the economy to grow 6.5% yoy and 7.4% in 2021F and 2022F respectively, underpinned by robust manufacturing expansion and a strong bounce back in service. We expect exports to accelerate 15%/11% yoy over FY21-22F.

Our optimistic view for VND has turned more neutral as USD may regain the upper hand in 3Q21 following the tapering asset purchases later this year. Meanwhile, we see the inflation risk is rising in tandem with macro momentum.

Equity market remains supported by robust economic momentum and strong corporate earnings. We estimate listed corporate earnings across the VN-Index will grow 30% yoy in FY21F. In addition, the dynamics of FOMO (fear of missing out) and vigorous local individual inflow will support the equity market uptrend. We expect the VNIndex to fluctuate in the range 1,400 – 1,500 pts within 2021; translating into 17.5 – 18.5x of FY21F P/E. Potential downside risks to the market include higher-than-expected interest rates, which might revert the local capital inflow, and the increasing of new share supply from recent robust equity capital raising.

Easy money made, time to double down on quality. We believe investors should focus on quality names that possess following traits: (1) sustainable earnings growth and scalable business models; (2) well-positioned to capture the opportunities from global demand recovery and (3) low gearing and resilience to rising rates.

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