Stocks continued to rise on the last trading day of September, cementing a positive third quarter.
Investors faced a number of global hurdles in the third quarter which impacted on Vietnamese equities. These included rising rates in the US and the trade tensions between China and the US. Nevertheless, the VNIndex managed to increase 7.4% in the third quarter which was despite falling liquidity (down 30% QoQ).
Though they’ve injected funds this past week, foreigners are still net seller for the quarter. They remain, however, net buyers YTD.
FTSE Russell announced this week the result of its annual market classification. They have added Vietnam to their watch list to commence the engagement process prior to a possible future reclassification to Secondary Emerging market status. Follow this link to see their classification conditions and the criteria that are still outstanding for Vietnam to graduate to EM: https://www.ftse.com/products/downloads/Watch-List_latest.pdf
I’m hoping this news will motivate regulators to continue to reform and upgrade the market. In the short-term, this news should also have a positive impact on investors’ sentiment.
For the first 9 months of 2018, GDP is estimated to increase by 6.98% over the same period last year which is also the highest growth of 9 months since 2011. The government is intensifying measures to boost economic growth while keeping inflation under control to retain its status as one of the world’s fastest-growing economies. The trade surplus for the January to September is estimated at USD5.39 billion according to a recent government report. The country is on track to post another trade surplus (which would be for the third consecutive year). The government’s trade surplus this year is around USD2.4 billion, up about 10% from 2017.
The government is moving to quickly reduce obstacles to private investment, while infrastructure projects will be fast-tracked. As one of the most trade dependent nations in Asia, Vietnam is caught in the crossfire of the worsening US-China trade conflict.
Textile and garment sector ranked second in terms of export value, reaching USD19.4 billion (up 14.9% YoY. The textile industry seems to have benefited from the shift of large branded customers since 2017 as Chinese policies discouraged labour-intensive industries. The Vietnamese textile and garment industries should continue to benefit from any new shifts caused by the US-China trade spat. Stocks such as STK, TCM, GMC, GIL, VGT and TNG should be direct beneficiaries.
Rong Viet Securities Equity Research Summary
Analyst Pinboard
Rice Exports – More Opportunities for Small and Medium Enterprises
Decree No. 107/2018/ND-CP, regulating the rice export business will take effect from October 2018. The most noticeable change is that export requirements will be loosened.
Decree 107/2018/ND-CP also reduces the minimum reserve ratio from 10% to 5% of the rice volume that traders exported in the previous six months.
We think there are still some issues to keep in mind.
o Firstly, the centralized export contracts implementation is not flexible.
o Secondly, regulations are not straightforward regarding traders who only export organic rice, parboil rice and multi-micronutrient fortified rice.
Conclusion: this policy change is expected to make rice export more active from the fourth quarter of 2018.
Loc Troi (UPCoM: LTG) is likely to benefit from this new regulation.
Views on Raising the Environmental Protection Tax (EPT) on Gasoline Retail Prices
On September 20th, the National Assembly Standing Committee passed a resolution which raises the environmental protection tax on fuels and takes effect from January 01 2019.
First of all, that the resolution takes effect from January 2019 reminds us of last December’s increase in electricity prices.
With regard to the public budget, there is no doubt that there is limited room to maneuver as the public debt is close to the maximum level and the budgetary deficit is on the way.
It is obvious that the public budget rebalancing, through higher revenues and lower expenditures, has to happen.