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Special Report: Preliminary 2H2020 outlook

MACRO OUTLOOK: A BUMPY ROAD

• Vietnam’s GDP growth is revised down to 2% yoy for 2020 as the recurrent episodes of the pandemic have been made the economic recovery painful. Vietnam and other EMDEs are weathering the storm, caused by diminishing external forces such as disruptions to global value chains, collapse in exports, plummeting commodity prices and retrenchment in capital inflows.
• In 2H2020, there are still positive forces powering the economy. Firstly, Vietnam will record a all-time trade surplus, which is strongly supportive for macro stability. Secondly, exports to the EU are expected to rebound as the EURVND is moving up and the EVFTA has taken effect. Lastly, the government is committed to support the economic recovery via surging public investments.
• There are important policy trade-offs in the midst of the pandemic. The near-term is between public health and economic activity. The other trade-off is between the short-term stimulus and long-term macro stability. The government must balance state resources and the ultimate need of bridge financing, especially assistance to large firms. Meanwhile, the central bank is required to address the credit default risk as well as long-term financial stability under circumstances of high debt levels.
• Credit default risk is mounting and credit losses could be materialized, particularly after the payment holiday period ends. Two model-based indicators measuring Vietnam’s Probability of Default in one year and value-weighted Corporate Vulnerability Index are the highest in ASEAN.

MARKET OUTLOOK: Rising gradually on the back of ample liquidity

• The large gap between monthly money supply and credit growth will remain for the rest of 2020.
• In that context, real estate assets are not really attractive at this time due to high selling prices
• Gold price has increased sharply YTD but risk-on, reflected by the all-time high on the S&P 500 Index, has caused the price to drop lately.
• The new decree in corporate bond issuance will lower new issuance in 4Q2020.
• Market will not experience another strong sell-off in the following months of 2020
• Supportive Fed will keep the US dollar weak.
• MSCI will increase Vietnam’s weight in the Frontier Market Index in November.
• VNIndex is cheap relatively to its past but is, currently, at a fair price against its peers. We think the market may reflect current expectations.  We expect that the VNIndex could close around 900 at a 2020 PE of 16.5x by year-end.
• How fast the economy can recover in the remaining months of 2020 in part because of the second Covid wave and the delay of reopening commercial international flights.

SECTOR OUTLOOK

• Most sectors reported a poor performance in 1H 2020. Financial services, telecommunication, and F&B recorded revenue growth higher than   last year, mostly due to a low base in 2019, while other sectors’ revenues decreased.
• For the sector outlook in the 2H 2020, most of our analysts believe that the pandemic will continue to negatively impact supply and demand. Some sectors, such as technology, industrial parks, power, insurance and securities, have a positive outlook.
• Price of many commodities have been decreasing, mostly due to a drop in demand. We, however, believe that it is a short-term driver for gross profit margin.
• Meanwhile, we are still confident on the long-term outlook for most sectors, especially with legal reform occurring in many areas.

We are positive on technology, industrial parks, pharmaceutical, and power. We are, however, negative on textile and natural rubber.