20161011_BSC_Vietnam Sector Outlook_EN_2016_Quarter 4

As discussed in our Sector Outlook Report 2016, and updated in our Sector Outlook Report 3Q2016, it has become more challenging for investors to select sector for investment as LargeCap had an impressive growth of +31.6%, along with a strong growth of 28.3% for MidCap and BlueChips, 22.6% for SmallCap, and 11.7% for Penny. In 9M2016, most of the investment themes and our recommendations are developing as expected. On the other hand, some sectors and stocks were not performing as well as expected.

Where is Vietnam in the business cycle? It is difficult to assess the current business cycle due to the fact that emerging economies like Vietnam will depend heavily on the policies of large countries like China, US, and Europe. By definition of the business cycle, Vietnam is still in the middle of Initial Recovery and Early Upswing (before Late Upswing – Slowdown – Recession) with economic characteristics such as low inflation with slight increase, low short-term interest rates, low/reduced bond yields. This stage is more suitable for equity investment than other investment channels. We also note that the credit growth in 2016 is forecast to reach 18-20%, the highest level in the last 5 years, which directly impacts GDP, interest rates and inflation. The credit growth will correlate with the growth in money supply (inflation rise) and capital mobilization (interest rate rise). BSC forecasts interest rates will remain low and stable in the last months of the year, creating favorable conditions for stock investment in 4Q/2016 and 2017.

We highly notice the following risks: (1) China maintained a good growth as the Government accelerates spending: the investments by state enterprises rose by 21.4% and the government budget spending went up by 12.7% during 8M2016; (2) The spread of Nationalism after the Brexit, especially in Europe, where there will be many changes in the country leaderships; (3) The last moves of candidates for the 58th US presidential campaign; (4) The escalation of IS in the Middle East; and (5) FOMC in Nov and Dec with the possibility of rate hike. The market will also fluctuate along with the OPEC conference, the meeting among central banks of England, Japan, Europe.

The 4th quarter, the acceleration quarter. Typically, the last quarter is the peak season of business activities in a year. Particularly, 2016 is the year of election, so many business activities have slowed down, especially the public investments during the first 9 months of 2016. Therefore, in spite of strong growth of FDI flows, abundant money supply and low interest rates, the economic growth was much slower compared to the same period. Thus, the highlights of the fourth quarter would be the reform efforts and economic promoting measures, which begins to show positive impacts on enterprises and later on the stock market.

Assessing the attractiveness of sectors/stocks, potential for growth of core business activities accompanied by valuation is always our most important criteria, along with the consideration of external factors. Our statements on investment topics, sectors and time for the last 3 months of 2016 are based on analysis of (1) Policies and information affecting sectors in the last 3 months of 2016; (2) Evolution of sectors, stock market and macroeconomic factors which were assessed in Macro & Market Report 9M2016.