How to break out in 4Q19
18/09/2019 - 08:48
How to break out in 4Q19
Global risks are in foremost in our minds as we consider how to position in Vietnam going forward. In particular, we view the US-China trade war in geopolitical terms and do not expect a return to the status quo no matter who wins the US presidential election in 2020.
Vietnam as a trade war beneficiary appears to be the consensus view. We tend to agree in the short term, although the longer term effects are complex and impossible to project with confidence. In any case, FINIs appear to be taking a risk-off approach in this environment, which accounts for the persistent foreign net selling of Vietnam and the broader emerging markets in recent weeks and months.
The perils of VNI targeting. We set our original 2019 VNI target at 990 in our initial strategy note published in January. That call has been approximately right YTD. However, we increased our target in April to 1100 (implying 11% upside from here) based on the assumption of a recovery toward 4Q19 given what we saw (and continue to see) as inevitable monetary loosening / QE on the part of global central banks.
So how do we get to 1100? It’s hard to see this happening if foreigners remain net sellers, but there is reason to believe that they might return to the market in 4Q19. Vietnam remains a compelling story and global CB loosening should ease market liquidity concerns. Potential clarity on NVDRs at yearend would boost market sentiment given the potential implications for eventual EMI inclusion. Also, the likely 4Q19 HOSE listing of two new ETFs could alleviate what we view as pricing anomalies among some of the large full-FOL stocks. This might also help to continue improving the market’s narrow breadth YTD.
Regionalizing our recommendation standards. Yuanta is standardizing our research brand across all our Asian subsidiaries. For Yuanta Vietnam, this includes a shift from our previous three-part rating scale (Buy, Hold, and Sell) to a four-part system that also incorporates two relative measures (Hold-Outperform and Hold-Underperform). Please see the disclosure section for details of the recommendation system and Page 8 for a list of changes to our stock recommendations.
Top picks: VHM in property; STB as a longer-term turnaround play; PVD as an oil proxy with a kicker from the pending Brunei contract; and HCM for Beta on our 4Q19 rally – or as a hedge if you’re underweight.
For the complete report, please access here: Vietnam Strategy — How to break out in 4Q19
Analyst: Matthew Smith, CFA, Head of Research