Qui Thinh Tran/iStock via Getty Images
At a time when other major world economies are cutting fiscal and monetary support to curb inflation, Vietnam is poised to support its growth.
The macroeconomic prospects of Vietnam is bright as the country has experienced strong domestic consumption, received foreign direct investment (FDI) and maintained a surplus in trade balance with other countries. Vietnam’s real GDP growth is expected to exceed 8% in 2022.1
Real GDP growth in Vietnam
YTD 2022 is the World Bank projected GDP growth rate. (CEIC data, Jefferies, as of 09/01/2022.)
At a time when other major world economies are cutting fiscal and monetary support to curb inflation, Vietnam is poised to support its growth. In January 2022, Vietnam passed a US$15.4 billion stimulus package at nearly 4% of its GDP to support its 8% growth target for the year.2 The stimulus is widely seen as positive for the country’s GDP growth trajectory viewed for the year.
Vietnam’s currency and interest rates also seem relatively stable compared to other countries. The State Bank of Vietnam only recently began tightening monetary policy to curb inflation and plans to keep it at a target rate below 4% this year.3 Vietnam’s contained inflation is around 4% and low borrowing costs A central bank discount rate of 4.5% supports a recovery in domestic consumption as COVID restrictions ease.1 A strong recovery in private consumption coupled with strong export growth contributed to the country’s impressive GDP growth of 13.67% in the third quarter at.4 Vietnam’s strong macroeconomic position is expected to lift its population out of poverty as more than half of Vietnam’s population is projected to join the global middle class by 2035
Vietnam is also generally seen as a beneficiary of the US-China decoupling as multinationals look to diversify their assets outside of China. China’s zero-COVID policy appears to support offshoring to Vietnam. The country has managed to remain attractive to foreign investors, registering total net foreign direct investment (FDI) inflows of 15.3 billion in 2021. The country’s macroeconomic outlook.
Given the strong macroeconomic outlook, the country’s capital markets appear to be trading at attractive valuations. Some money managers are expecting earnings per share (ESP) growth of about 20% year-on-year in 20226, and yet the Ho Chi Minh stock index is down about 40% year-to-date7. Valuations can be attractive at these levels, trading at only around 10x 2022 earnings estimates.8
Vietnam’s market liquidity has also improved in recent years, with the average daily trading volume increasing from US$97 million in 2015 to US$1 billion in 2021. There are now at least fifty publicly traded stocks with a market capitalization greater than $1 billion. indicates the growth of the market.
Vietnam Stock Market Average Daily Sales
Includes Ho Chi Minh City and Hanoi Stock Exchanges. Source: Bloomberg data.
The Vietnamese Ministry of Finance issued a statement on its focus on strengthening stock market infrastructure and developing, diversifying and enhancing the quality of products in the market.9 Regulators appear to be taking steps to improve corporate governance and close critical financial market infrastructure modernize . Earlier this year, Vietnamese authorities cracked down on violations in the stock, bond and real estate markets to put in place adequate control mechanisms to protect investors.9 Regulators also fired the head of the country’s main stock exchange in a bid to strengthen corporate governance and transparency its financial markets.10 Vietnam Securities Depository (VSD) recently made changes to the stock settlement cycle to speed up the trade settlement process.11 VSD is also working on implementing a new information technology system that will enable same-day trade settlement and help combat system congestion issues due to higher trading volumes. The system will allow regulators to implement meaningful reforms in derivative products, intraday trading, short selling, foreign access, re-listing and compliance with international reporting standards.12
Vietnam is currently on the secondary emerging markets watchlist of FTSE indices and could join the MSCI emerging markets watchlist in 2023. The Vietnamese Ministry of Finance has included this goal in the “Restructuring of the Stock and Insurance Market” project, and the draft strategy aims to help transform the stock market from a frontier market status to an emerging market status by 2025
A major obstacle to upgrading is foreign ownership lines (FOLs); Typically, FOLs are government-imposed quotas on the percentage of foreign ownership in a company. Once a company has reached its FOL, no further foreign investment can be made until the level of foreign ownership decreases; these companies are therefore typically excluded from global indices. There have been positive developments since September 2015. Companies are allowed to increase their FOL if they are not in a government-defined strategic sector. There are already some companies that have decided to do this. In general, foreign investors can own up to 100% of a joint-stock company. Currently, the limit is 30% for bank stocks and 49% for most other companies, such as those in telecoms or sectors considered strategic by the government.1 Vietnamese regulators appear determined to help the country to the status of an emerging country. The State Securities Commission of Vietnam works with global authorities such as the World Bank and FTSE, as well as Vietnamese ministries, associations and market participants to address concerns about foreign ownership borders.14
The country’s regulators appear poised to make markets more accessible to foreign investors and increase infrastructure support needed for a healthy and functioning market. An upgrade to emerging market status could potentially attract foreign active and passive inflows into the local Vietnamese market. VanEck Vietnam ETF (VNM) provides access to Vietnam’s growth history and could be an attractive investment for investors seeking growth exposure outside of traditional emerging markets. VNM, the largest and most liquid US-listed Vietnam ETF, offers investors one-trade access to the Vietnam market.15
disclosure
Sources:
1 Investing.com. Data as of 10/31/2022.
2 Reuters, “Vietnamese lawmakers approve $15.4 billion stimulus package.”
3 Reuters, “Vietnam Central Bank raises interest rates by 100 basis points.”
4 Reuters, “Vietnam Q3 GDP growth up 13.67% yoy as manufacturing recovers.”
5 World Bank data.
6 CNBC, “Cheap Valuations, Strong Growth: Fund Manager Says Time to Buy Vietnamese Stocks.”
7Bloomberg. Data as of 11/15/2022.
8 Dragon Capital Management.
9 Bloomberg, “Brokerage boss jailed as Vietnam stock slump deepens.”
10 Reuters, “Vietnam fires head of country’s main stock exchange for ‘misconduct’.”
11 VnExpress, “Exchange settlement to be accelerated by 4 hours.”
12 The Phnom Penh Post, “KRX Share Scheme May Improve Status of Vietnamese Market.”
13 SGGP News, “Upgrading Vietnam’s Stock Market Driver for the Future.”
14 VietNamNet Global, “Upgrading Vietnam’s Stock Market Driver for the Future.”
15Bloomberg. Data as of 09/30/2022.
This is neither an offer to buy or sell nor a recommendation to buy or sell the securities/financial instruments mentioned herein. The information presented does not contain any personalized investment, financial, legal or tax advice. Certain statements contained herein may constitute forecasts, projections and other forward-looking statements that do not reflect actual results, are current as of the date of this release and are subject to change without notice. Information provided by third party sources is believed to be reliable and has not been independently verified for accuracy or completeness and is not guaranteed. VanEck assumes no liability for the correctness of third-party data. The information contained herein represents the opinion of the author(s), but not necessarily that of VanEck.
An investment in the Fund may be subject to risks which include, but are not limited to, investing in Vietnamese issuers, foreign securities, frontier market issuers, foreign exchange, depositary receipts, consumer staples sector, financial sector, consumer discretionary sector, information technology sector, real estate sector, small and mid-cap companies , cash transactions, stock values, market, operations, index tracking, permitted concentration of participants, no guarantee of active trading market, trading problems, passive management, trading in fund shares, premium/discount risk and liquidity of fund shares, issuer specific changes, undiversified risks and concentration risks, the all may have an adverse effect on the Fund. Investments in foreign and frontier markets are subject to risks, including changes in economic and political conditions, changes in foreign regulations, changes in exchange rates, unstable governments, restrictions on foreign ownership and limited trading capacity, which may make such investments volatile in price or difficult to trade . Small and mid-cap companies may be at increased risk.
Investing involves significant risk and volatility, including a possible loss of capital. An investor should carefully consider the Fund’s investment objective, risks, charges and expenses before making any investment. To obtain a prospectus and summary prospectus containing this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
© Van Eck Securities Corporation, distributor, a wholly owned subsidiary of Van Eck Associates Corporation.
Original post
Editor’s note: The summary bullet points for this article were selected by Seeking Alpha editors.
Comments are closed.