Stock market to benefit from surprisingly strong domestic growth: VinaCapital

VIETNAM, August 8 –

HCM CITY — “Việt Nam’s economy is still stronger than we expected at the start of the year, but this strength is not reflected in rising stock prices due to the [US’s] aggressive rate hikes and the recent regulatory crackdown in Việt Nam,” said Michael Kokalari, chief economist at VinaCapital, in a report.

“That said, we expect more than 20% [company earnings] growth in 2022, which should support a recovery in the VN index by the end of 2022.”

July’s economic data not only bolstered VinaCapital’s forecast for GDP growth of 7.5% in 2022, but also gave the impression that the economy would grow by an astonishing 10% year-on-year over the course of the year. current quarter, he said.

“Our forecast for Việt Nam’s economy to grow at least 7.5% this year (and at least 10% in the third quarter) leads us to believe that the consensus forecast of 16% [company] earnings growth this year in Việt Nam is too conservative.

“We expect earnings growth to exceed 20% this year, supported by Việt Nam’s strong economic performance – in stark contrast to the US stock market, where earnings growth expectations appear unrealistic, especially given deteriorating earnings. economic prospects of this country.”

Việt Nam’s retail sales accelerated all year, illustrating that consumption is currently the main driver of growth, he said.

In the first half of the year, inflation-adjusted retail sales rose 7.9% and jumped to 11.9% in the first seven months, well above the 7-month growth. % than his company had previously forecast, he said.

“This is important because we are often asked now whether the ongoing downturn in the US economy, Việt Nam’s largest export market, will weigh on economic growth in Việt Nam.”

A slowdown in the U.S. economy is likely to temper export growth and Việt Nam’s economic growth, but that would be more than offset by the strength of Việt Nam’s domestic economy, he said.

“The revenues and profits of companies listed on the Việt Nam stock market are mainly driven by the domestic economy, which is why we would have expected the stock market to benefit from the surprisingly strong domestic growth.”

The stock market rose 37% in 2021, driven by a 36% increase in profits.

“All of this makes it somewhat surprising that the VN index is currently down 17% year-to-date.”

The main reason for the recent dour sentiment among retail investors is the government’s regulatory crackdown on illegal practices by some companies that began in late March, he said.

“But we believe the government’s efforts to improve corporate governance and transparency in Việt Nam will ultimately benefit the stock market and the country as a whole.”

The issue has had less of an impact on the stock market in recent weeks, and Việt Nam already has the highest rankings for transparency and political stability in Southeast Asia, according to a report by Political & Economic Risk. Consultancy, he said.

Upcoming Bounce in the VN-Index

VinaCapital expects another decline in the US stock market, which could in turn lower the Việt Nam stock market.

Kokalari said, “However, at some point we expect the Fed to back away from its aggressive rate hike plans. Việt Nam’s stock market is likely to be one of the biggest beneficiaries of a Fed pivot, as Việt Nam has the most attractive valuation in the region and the second highest expected earnings growth after Indonesia.

“Furthermore, Việt Nam’s corporate earnings quality/visibility is currently much better than that of Indonesia and other regional peers.”

He also expects bank stock prices to outperform in the second half of the year as it becomes clear that banks’ post-COVID asset quality issues are much less severe than many investors feared. especially in light of Việt Nam’s very strong GDP growth in 2022. — VNS

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