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Special Report – Preliminary 2H2021 outlook

MACRO OUTLOOK: THINGS GET WORSE BEFORE THEY GET BETTER

• Until now, Vietnam has undergone more than 3 months fierce battle with gradually tightening measures from the government to control the outbreak. On the other hand, strict Covid-19 measures are currently posing a threat to the economic recovery. We estimate that economic sectors are running at below 50% capacity due to the fourth outbreak.
• Vietnam has rolled out the vaccination drive since 8 Mar, which is relative late to most of its peers. Based on vaccination of 300k per day, we estimate 70% of the population to be vaccinated at least one shot by Q22022. Currently, vaccine rollout in Covid-19 hotspot HCMC is a crucial step for gradually loosening the lockdown and allowing more economic activities to operate.
• In our view, 2H21 economic outlook will depend on the effectiveness of virus containment and vaccination progress. Our 2021 GDP forecast was cut to 4.0%, reflecting the negative impacts of the fourth outbreak on domestic activities as well as precautionary relaxation of Covid-19 measures. Risks to our view: 1) uncertainty over the future trajectory of Covid-19 & 2) vaccine supply constraints.
• Our 2021 inflation forecast was 3.5%, but risks are to the upside. In addition, near-term inflation pressures could feed into 2022 inflation expectations due to the combination of rebounding demand and constrained supply.

MARKET OUTLOOK: CAUTIOUSLY OPTIMISTIC

• Market overview 1H 2021- Individual investors led the market

• Vietnam is one of the leading market in terms of return given the strong participation of individual investors in 6M 2021.
• Foreign investors were net sellers.
• VN30 was the main market driver led by banks, steel and securities stocks.
• Earnings of listed companies strongly recovered YoY.

• Market outlook 2H 2021- VN Index to move in a range of 1,250 – 1,550

• Low interest rate environment.
• The comeback of foreign investors
• The accelerated vaccination in HCMC is pivotal to boost market sentiment
• Extended lockdown to impact the recovery progress of business activities.

SECTOR OUTLOOK

• Most sectors reported robust growth in both revenue and NPAT in 1H 2021 primarily on the back of last year’s low base. Notably, commodities related sectors namely steel sector, chemicals saw its business results skyrocketed as price of many commodities have been surging, due to a surge in recovered demand and disrupted supply chain telecommunication. Also, brokerages firms posted tremendous profit growth owing to massive influx of retail investors to the stock market. On the downside, travel & leisure sector continued to witness a plummet in profit due to resurgences of the pandemic.

• For the sector outlook, we expect the recovery theme on the global scale, accelerated by the speeding up vaccine rollout, to play an important role in our sector and stock picks. As such, we are optimistic about the prospects of sectors that are geared to global markets such as logistics and aviation. For the domestic market, we believe real estate, retail, F&B, technology sectors will be the main beneficiaries when the stringent social distancing order loosens in the upcoming times. Additionally, prospective extended rally of commodities could further benefit steel producers
• On the other hand, we are cautious on the near-term profit outlook of some manufacturers, who will be witnessing its operating costs surge dramatically in an effort of maintaining businesses in the time of the pandemic, in the textile and fisheries. However, those sectors should also enjoy a more vibrant outlook in 2022F, underpinned by strong rebound in exporting demand.