Whether or not the Christmas rally started early, this week marks the 3rd consecutive week of gains, as the market rallied 3.5% WoW.
Since November 9th the VNIndex has gained 4.9%. Early in the week, investors were celebrating (perhaps too enthusiastically) the news from the Buenos Aires meeting between Tump and Xi. Following Asian markets upward, the VNIndex jumped 2.7% to 951.59 pts on Monday alone. Liquidity improved and we saw total matching value on the HOSE soar up to VND3,531 billion (~USD153.5mn), from an average of VND2,340bn (~USD101.7mn) the previous week. Moreover, cash flow returned to large cap shares driving the VN30 index up 3.01% to 921.72 pts on Monday. Our TA guys believe that this was an important technical indicator showing a highly possible recovery for the Vietnamese stock market.
Sentiment was relatively positive for most of the week, until Thursday’s of Huawei’s CFO arrest in Canada on behalf of the US which spooked investors in early trading. However, despite strong intraday volatility, the VNIndex managed to close only slightly down, to 954.82 pts, -0.24% from Wednesday. This was the smallest decline among Asian markets.
Increasingly local investors are starting to believe that the Vietnamese stocks are uncorrelated to the rest of the world, and that they can follow its upward trail, no matter where global indexes go. That might have been the case since early November.
However, we all know what happens when risk-off sentiment returns and markets move in unison. My point is that investors may want to be cautiously optimistic and look for attractive prices for shares of quality companies that have dropped to more reasonable valuations.
How close is Vietnam to the FTSE’s Secondary Emerging Market status?
In the last FTSE’s annual review published in September 2018, Vietnam was added to the watch list for possible upgrade to Secondary Emerging Market in the future.
Kuwait, China A shares and Saudi Arabia were the newest Secondary Emerging markets.
- Kuwait had to wait for ten years before achieving the status in 2018. The outstanding criteria was “Clearing & Settlement – T+2/T+3” addressed in May 2017 by the country.
- China A shares: increasing accessibility of the China A-share market for international investors was a long-lasting problem for China.
- Saudi Arabia fulfilled “settlement – rare incidences of failed trades” and “clearing & settlement – T+2/T+3”. Hence, FTSE upgraded Saudi Arabia in September 2018.
Considering that Vietnam was added to the watch list while it had met nine out of nine criteria, we believe if it can maintain these conditions throughout the ongoing review year, Vietnam will be upgraded to Secondary Emerging Market status in 2020.
Pharmaceutical – Steady but Slow Progress
We only have a NEUTRAL view on the pharmaceutical industry for 2019 even though the transition progress in hospital channels may somehow speed up.
According to UNFPA, although Vietnam is still a young country, the population entered the “aging phase” in 2017. An aging population means more spending on pensions and healthcare.
Healthcare spending leaning towards the ‘hospital channel’: According to BMI, sales of the Vietnam pharmaceutical market is USD5.3bn of which sales to hospitals account for 70%.
As rising spending for healthcare is only a matter of time, the government needs to control costs. This will also help control inflation of healthcare.
Some domestic manufacturers, namely PME and IMP, won the bid in Tier 1 and Tier 2, typically dominated by foreign drugs. However, the amount has not reached our expectations.
However, winners will be the one who manage to sell the drugs to end-users
Risks
Policy risk is the major issue as the industry is heavily policy dependent.
FTAs coming into effect would lower the imported tax for foreign drugs.
High input price will likely remain due to the environment protection act from China.
FPT Online – New digital media listing on UPCoM
Ever since Yeah1! (HSX: YEG) listed, I’ve been hoping for more digital media stocks to list here. And next Monday December 10th, we’ll have one. FPT Online (UPCoM: FOC) will be FPT Corporation’s fifth subsidiary to list in Vietnam.
FPT Online publishes the online newspapers VnExpress, Ngoi Sao and iOne in Vietnamese and VnExpress International in English. Traffic data for iOne and VnExpress International are unavailable as those websites are sub-domains to VnExpress.
The starting price has been set at VND110,000 (US$4.7) per share, which infers a market cap of VND1.55 trillion (USD66.3 million). At that price, the stock would be trading at 5.8x its 2018E EPS. Expect little liquidity as FPT and its related companies own ~85% of the 14.08 million shares. So there’s a pretty good chance the price will jump to the upper on the first day, and will trade in a similar was as Viettel Post. From market chatter on the OTC, we heard that blocks were changing hands at VND140,000 per share.
This year, FPT Online targets revenue of VND570 billion (USD24.8mn) and after-tax profit of VND267.2 billion (USD11.6mn).