20180808_BSC_Vietnam Sector Outlook_EN_3Q2018

Investment Strategy for Q3/2018
In the context of global economic growth slowing down by the risk of trade war escalation, countries with great economic openness are facing the risk from many sides. In addition, the US and EU tend to tighten their monetary policies. Some critical issues worth noted in 2H2018 are (1) Chinese Economy, (2) Trade war, (3) Commodities and Inflation, and (4) Monetary Policy.

Investment theme for 2H2018
Located in the Asian region, and as a borderline market, indirectly affected by net withdrawing capital similar to neighbor markets in the first 6 months, Vietnam’s stock market has fluctuated in sync with the emerging markets and Asian markets. Nevertheless, Vietnam's macroeconomic conditions are still well accompanied by attractive valuations (please refer to the Macro Economic report 3Q2018). After the sharp fall of the stock market in Q2/2018, in case the external factors are not too bad, the stock is likely to recover thanks to business results. The outlook for many sectors over the next 1-2 years is very different due to the impact of macro factors on a global scale, which will cause the stock market to diversify rather than just one-way fluctuations as in more than two last year
Firstly, the adjustment from the new equitization and Listing. From 2016 to Q2/2018, the market is consistently receiving large IPOs, private placements and listing of SOEs as well as private companies. Huge supply increases when valuing is at high level makes the market shortage of cash flow from investors. The adjustment of stock prices and IPO supply is gradually limited, will make the new shares closer to the value.
Secondly, the opportunity from State Capital Divestment from leading firms. Contrary to the 2017 diversion and IPO early in 2018, the transaction of divestment in the second half of the year will be more difficult. The reason is the increasing in risk and decreasing in expectation of stock market’s growth. This also means that the divestment, if successful, will be at a more reasonable price than the previous stage, providing opportunities for investors. Some businesses should be noted such as PVI (insurance), CSM, DRC, CSV (chemicals), VGC (construction materials).
Thirdly, the bank recovered thanks to business results. Good Q1’s results along with Q2 and 2018 in the same uptrend, banking sector will continue to have a good year of business growth. The majority of banks are also listed on the stock exchange and account for a large proportion. After a period of hot growth in share prices, the sharp fall of the second quarter of 2018 has brought many banks back into attractive valuations for long-term investors. However, we shouldn’t expect that the valuation of banking sector to be as high as Q1/2018.
Fourthly, real estate continues to grow. The period from 2018 to 2019 will be the time to continue to record strong growth in business results. However, we also note that the new Property Tax Law proposed by the Ministry of Finance with the imposition of real estate tax valued at over VND 700 mn may change the Real estate sector in next 2-3 years. Investors tend to focus on mid-class more than in previous years. This sector will also be under pressure caused by tightened monetary policy, especially when CPI is not favorable.
Fifthly, external instability and defensive sectors. The turbulent Asian stock market was triggered by the Trade War and tightened monetary policy in big countries. After this period, investors may focus on high-defensive sectors, such as Electricity (POW, NT2), Retail (MWG, PNJ), F&B (VNM) ... Those sectors still benefit and maintain steady growth thanks to domestic demand.