Vietnam Market Strategy – Stay defensive in 1H19
07/01/2019 - 09:32
2019 VNIndex Target: 990
Key market themes:
- Disconnect between strong domestic macro growth and laggard capital markets is likely to continue in 2019, in our view.
- Domestic macro looks solid, with strong FDI, buoyant employment, and VND stability pointing toward solid domestic demand.
- But stock prices may continue to lag as foreign inflows remain tepid. This is likely to be largely externally driven by global liquidity (i.e., major central bank actions).
- We think the outlook should improve by 2H19 as global CBs signal softening, but for now we recommend that investors position themselves defensively.
Macro looks good… FDI likely to remain strong based on conversations with our colleagues in HK and Taiwan who cover China-based manufacturers. We expect VND buoyancy on strong FDI, a favorable current account, and sufficient FX reserves. Domestic policy rates may not move much higher, but effective credit costs are still likely to increase at least in 1H19. Net-net, these conditions should continue to provide a solid foundation for domestic demand growth.
…But it’s hard to be sanguine on the short-term stock market outlook. SOE privatization may remain difficult even if legal/political issues are overcome given that market conditions remain tepid. MSCI emerging markets index inclusion remains a discussion topic, but does not appear likely this year. As such, foreign institutional activity is likely to remain subdued, which could have knock-on effects on already-weak sentiment among retail investors.
Risks to our (cautious) view are largely exogenous. Global CBs (remember, it’s not just the Fed) could tighten further and longer than we think. China is another wildcard, and we think largely to the downside. But the risks are not only negative. Belief in Santa Claus is a lousy investment thesis, but potential upside drivers could include a reversal of global quantitative tightening. Domestically, major investment inflows from strategic stake buyers or a faster-than-expected pace of capital market liberalization could rekindle flames in the hearts of both retail and institutional investors.
Please access the link for our complete report: Yuanta Vietnam Strategy — Stay cautious in 1H19
Analyst: Matthew Smith, CFA, email@example.com