Vietnam market correction represents once-in-a-decade buying opportunity: Maybank

VIETNAM’S Ho Chi Minh Stock Exchange, the country’s main bourse, is trading at once-in-a-decade low valuations and presents “attractive” arbitrage opportunities for investors, according to Maybank Securities.

In a report on Wednesday (Jan 4), analyst Hoang Huy noted that bright spots in Vietnam’s economic outlook for 2023 included the country’s pro-growth government, China’s ongoing reopening, and the planned rollout of a central clearing counterparty (CCP) institution in June.

On a trailing 12-months basis, the benchmark VN Index is trading at a price-to-earnings (PE) ratio of about ten times, Huy said, which is lower than most regional indices.

For reference, Singapore’s benchmark Straits Times Index traded at a 11.76 PE multiple as at Friday.

“For a country that can deliver 6 to 7 per cent gross domestic product (GDP) growth in the foreseeable future, such valuation is an attractive arbitrage opportunity,” the analyst said.

Vietnam’s economy grew at the fastest pace in Asia in 2022, with the country’s GDP gaining some 8 per cent.

Amid weakening consumption and trade, public infrastructure expenditure directed by the country’s government will power economic growth, Huy said.

Vietnam’s exports declined 14 per cent year on year in December, the second straight month of fall.

The Asian Development Bank had previously predicted that Vietnam’s economic growth in 2023 to be 6.3 per cent, due to economic slowing in major trading partners.

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With China’s reopening at a steady state, the analyst noted that it would take about six months before normalisation, based on Vietnam’s own reopening last year.

Once activities fully resume, China’s reopening will prop up Vietnam’s trade, tourism and foreign exchange sectors, Huy said, offsetting slowdowns in Western countries and in the domestic economy.

China is Vietnam’s largest trading partner, with bilateral trade contributing a quarter of Vietnam’s international trade in 2021.

Foreign inflows are likely to be strengthened once the scheduled CCP institution goes online in June, Huy added.

Already, Vietnamese equities saw their highest inflows from foreigners since 2018, according to data compiled by Bloomberg.

However, inflationary pressures could send Vietnam’s economy into a prolonged downturn, Huy said, following the central bank’s decision to raise interest rates by 200 basis points in two moves last year.

In such a scenario, the VN Index could drop to 850 to 950 points, before rebounding to 1,150 to 1,400 points in the second half of 2023, he added. In his view, the VN Index’s current valuation at a 10.6 PE multiple has already fully priced in such a scenario.

In the worst-case scenario, the VN Index could slump to as low as 750 points with debt maturities looming on the country’s real estate market, the analyst added.

The VN Index stood at 1,056.09 points, up 0.27 points or 0.03 per cent as at 3 pm on Friday.

The brokerage’s stock picks are focused on sectors with resilient earnings growth and attractive valuations, Huy said.

Some of the picks with a “buy” rating include Vietcombank, Techcombank and Military Bank for banking stocks, along with PetroVietnam Gas for energy counters.

Other counters include information technology company FPT Corporation and dairy company Vinamilk.