Vietnamese equities: Due a comeback?

Following a sharp pullback in 2022, relative to global equities, the Vietnam market is back to levels seen five years ago, despite robust GDP growth and a stable currency. With a rapidly expanding middle class and active foreign direct investment (FDI), the future looks positive for the economy and market, supporting Vietnamese corporate earnings growth during 2023 (VinaCapital highlighted analyst consensus expectations of c 20%, similar to 2022, at end-December). Typically, robust earnings result in a stock market rebound, so the Vietnamese market arguably looks primed for a recovery from last year’s underperformance and is attractively valued relative to Asian peers and its own history. Three London-listed trusts trading at historically wide c 14–18% discounts to NAV may provide a long-term opportunity for UK investors to buy into Vietnam at especially attractive levels after last year’s market declines. 

Five-year performance to end-December 2022

Source: Refinitiv, Edison Investment Research. Note: Total return (TR) in pound sterling.

Market volatility in 2022 driven by regulator actions

After registering impressive gains during 2021 (c 40% TR in pound sterling terms), primarily driven by retail investors, the Vietnamese market underperformed global markets in 2022 (see chart above). According to VinaCapital, this was due in large part to efforts by Vietnamese regulators to reduce stock market speculation by corporates. The market’s weakness was exacerbated by depressed emerging market (EM) sentiment and EM financial markets’ stress following tighter US monetary policy.

Managers expect market to pick up again

VEIL’s manager, Dragon Capital, believes 2022’s market sell-off has run its course, evidenced by new money flows into exchange traded funds supporting the market in recent weeks. While it is more cautious than consensus about the outlook for earnings and the market in 2023, it is optimistic about the market’s prospects over the longer term. VinaCapital also expects a broad-based improvement in the Vietnamese market in 2023, led by banks, consumers and industrial sectors. VOF’s manager continues to tilt the portfolio towards companies benefiting from the ongoing reopening of the economy and believes this strategy will translate into earnings growth of more than 25% for VOF’s portfolio companies over the coming year. VNH’s manager, Dynam Capital, is also confident about Vietnam’s outlook for 2023 and expects the domestic sector will help balance growth despite headwinds to the global economy.

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Joanne Collins

Analyst, Investment Trusts

jcollins@edisongroup.com 020 3077 5700