When assessing Vietnam's economic situation in the first half of this year, experts said that the gradual loosening of monetary policy, tax reduction, and expansion of public spending have helped minimize the impact of headwinds. This helps create more recovery momentum for a group of potential stocks of Vietnam.

Opportunities and Challenges of Potential Stocks of Vietnam

In 1H2023, Vietnam's economy experienced the second lowest level of growth in the last 12 years, as evidenced by GDP growth of a mere 3.7% and the export-import turnover decline of 15.2%. In addition, recent headwinds in the capital and credit markets, demonstrated by increasing corporate bond defaults and sluggish residential real estate sector performance, are putting significant pressure on the banking sector and other non-bank corporate industries.

SSI Research experts shared, "We are positive about the potential performance of the whole stock market and the growth prospects of potential stocks of Vietnam. However, we are not overtly optimistic about the economic outlook for Vietnam. Despite all the positive news over the past few years that has noted Vietnam as an FDI economic powerhouse. But in the short term, the stock market is not on par with the economy."
As of June 30, 2023, the estimated total value of defaulted bonds accounts for approximately 26.9% of the outstanding non-bank corporate bonds. One positive point is that monetary easing has begun, with a total reduction of 150 basis points in discount and refinancing rates. The policy may support 2H2023 and help alleviate the economic effects of reducing production and exports, even though the recovery of each sector may vary considerably.

Since the last quarter of 2022, the profits of retail businesses have decreased significantly due to many economic difficulties. The sluggish export orders forced companies to lay off workers while soaring inflation has weighed on consumers' disposable incomes, making them cut non-essential spending.

Moreover, interest rates are expected to continue to fall in the second half of 2023, helping ease pressure on home loan interest payments for consumers. At the same time, the recovery of exports (expected in Q4) will help boost consumption towards the end of the year.

In particular, SSI Research experts say that the profits of most retail businesses may have started to recover in 2H2023. "We expect industry profitability to be positive from Q4 2023 to 2024. The disbursement of consumer loans can drive the recovery, improve macroeconomic conditions, expand the market share of companies with substantial financial resources, and improve profit margins due to reduced inventories," SSI Research said.
On the side of VNdirect Securities, they expect new orders from major export markets to rise from the second half of 2023, easing concerns and gradually stabilizing firms' revenues and helping Vietnam enter a new consumption cycle. These are positive signs for the business's revenue and rapid growth opportunities for potential stocks of Vietnam.

Some Vietnamese retailers, typically Masan Group, have recorded positive recovery signals with Q2 business results. Masan Group reported earnings results for the second quarter and six months ended June 30, 2023. Masan continued its steady growth momentum for the second quarter, with net revenue reaching VND 37,315 billion, an increase of 3.6% over the same period. The CrownX grew 8% in revenue and 32% in EBITDA over the same period. Masan's core retail consumer platform achieved an impressive EBITDA growth of 32%. Earnings before interest, taxes, and depreciation

New growth support policies for potential stocks of Vietnam

Tien Phong Securities (TPS) expects that the Vietnamese stock market is entering a new growth cycle, with three supporting factors identified by their team.
Firstly, there is monetary policy easing. The State Bank of Vietnam (SBV) has reduced interest rates four times since the beginning of the year, bringing the refinancing interest rate down to 4.5%. Deposit interest rates have also decreased, currently at 7.2% in the top four banks. The SBV's interest rate cuts are beginning to positively affect the Vietnamese stock market. Time deposits of 6 months to less than one year, which had high interest rates in late 2022, have matured, and the efforts to lower deposit interest rates have partly redirected back to the stock market, reflecting the positive factors that emerged over the past year.

Secondly, there is exchange rate stability. The USD/VND exchange rate at Vietcombank has decreased by 4.9% compared to its peak in 2022. This decline is attributed to the US Federal Reserve (Fed) entering the final stages of easing tightening measures and reducing pressure on the VND exchange rate. The stable exchange rate creates conditions for the SBV to pursue an easing policy. Moreover, the fact that the Fed has yet to decide to reverse its policy at the current time helps stabilize investor sentiment. In the past, when the Fed reduced interest rates, stock markets tended to decline during economic crises. Nonetheless, current conditions point to a divergence from this historical pattern.

Thirdly, there is a more positive investor sentiment. Individual investors have become more optimistic about the market outlook since the most damaging factors occurred and were reflected in the market in 2022. In addition, other investment channels have also become less attractive due to the decrease in savings interest rates due to the SBV's policies. The bond market still faces unresolved issues, legal concerns, and a high debt burden in real estate. Securities companies also implemented stimulus programs from the beginning of 2023, including reduced margin interest rates, free brokerage fees and incentives for new customers.
As for inflation, inflation continued to cool down and remained below the target CPI of 4.5%. There is room for policy in the management of the exchange rate. Provide the assistance to bolster the economy through these challenging times. In the second half of 2023, inflation will likely be pressured by a 3% increase in electricity prices compared to the current average retail price.

While the current discrepancy may not yet be truly attractive for investors to allocate funds into the stock market aggressively, as was the case in the late phase of last year, with the forecast that market earnings will bottom out in the first half of 2023 and gradually improve thereafter, along with the possibility of deposit interest rates continuing to fall due to SBV's policies, the stock market will become more attractive. Therefore, this remains an opportunity for investors to increase their allocation or enter into this trend as well as an explosive opportunity for potential stocks of Vietnamese’s market.

The government has also deployed a raft of support policies to ensure the economy does not slow further. Viet Nam is looking to become a financial giant in the region. The rate cuts give manufacturers and businesses access to cheap cash, helping to boost trade. The expectation for a 7 percent interest rate growth can become a reality if these measures provide the government's intended boost.

The potential stocks of Vietnam market will continue to recover in the last months of the year

Beyond the recovery period, like other stock markets in the world, Vietnam's stock market is having a positive recovery. Vietnam's stock market gears up for a bullish second half of 2023, fuelled by lower interest rates and government support. Potential stocks of Vietnam across all sectors are poised for growth.
Mirae Asset maintained expectations in previous reports that the market's P/E will continue to move towards its 5-year average. The analyst team expects EPS growth to recover in a U-shape after the first and second quarters fell by 23% and 21%, respectively.

One of the industries receiving many positive recovery forecasts is the retail industry. Accordingly, stocks in this industry also become the most potential stocks of Vietnam’s market.

In the latest report, Vietnam Enterprise Investments Limited (VEIL) reported that its NAV, as of August 3, 2023, had surged 18.2% from the year's beginning. VEIL aims to invest in stocks that can perform well in the medium to long term.

Lumen Vietnam Fund said that its NAV at the end of July 2023 had soared 23.24% since the beginning of the year. The fund's objective is to attain superior long-term returns by advocating investments rooted in environmental, social, and corporate governance (ESG) principles. The fund invests at least 51% of its assets in stakes and stocks issued by companies in Vietnam or those with principal operations in Vietnam.

Large-cap stocks in the Vietnamese market account for 54.95% of Lumen Vietnam Fund's total NAV, including VHM (8.26%), HPG (8.05%), VIC (6.79%), VNM (5.65%), MSN (5.6%), and FPT of FPT Corp. (5.3%). These are potential stocks in Vietnam that institutional investors should pour capital into.
Meanwhile, the VinaCapital Vietnam Opportunity Fund (VOF) reported that its NAV had expanded by 3.5% in June and 10% since the beginning of the year. Its NAV has risen by 43.7% and 38.7% in the last three and five years. As per StockQ, a financial services firm, Vietnam's stock market holds the 11th position among the world's fastest-growing indices.

With most investment funds preferring blue chips, large-cap stocks, or those with good fundamentals and business results, tickers in the VN30 basket as MSN always appear prominently in their portfolio.

Optimistic outlook for potential stocks of Vietnam

"Stocks are attractively priced in the Vietnamese market, and it remains to be seen when the country's improved liquidity conditions and lower interest rates environment will encourage investors to return with large numbers to the buy-side. The Vietnamese government has taken effective measures to boost economic growth," said PYN Elite Fund.
Vietnam stocks aided by government support. This year's upward trajectory of Vietnam stocks corresponds with the Vietnamese government's implementation of different measures to drive economic growth. The IMF noted that Vietnam's economic growth would recover in H2 while inflation will likely be under control below the State Bank of Vietnam's 4.5% target. Meanwhile, Standards Chartered expected the economy to grow 7% in H2.

In addition, the government has purchased around USD 4 billion to strengthen the country's foreign reserves and has pumped over 100 tn dong (USD 4.25 billion) into the market. Furthermore, it has decided to lower VAT from July this year in various sectors, excluding banking, consumer goods, real estate, and securities services. In particular, the VAT reduction from 10 to 8 percent for essential items such as dry food, beverages, and household goods has a dual benefit, as consumers can buy cheap goods while businesses' revenue grows.

"The Vietnamese government, especially the State Bank of Vietnam, has taken several measures to stimulate the economy... All these actions by the Government have definitely strengthened investors' confidence in Vietnam," said Andreas Vogelsanger, CEO at Asia Frontier Capital (Vietnam).

"Over the past two months, investment inflows into potential stocks of Vietnam have soared notably, leading to the outperformance of small- and medium-cap indices against key benchmarks," he adds.

Besides, the large-cap retail stocks group also received much attention from investors. Since its debut on HOSE in 2009, Masan Group's MSN stock has consistently attracted significant interest from domestic and international shareholders and investors.

As per J.P. Morgan's assessment, Masan's prominent status within a sizable and promising retail market and strategic capital allocation toward the consumer and retail core underscores its leadership. Masan's steadfast commitment to nurturing the consumer market culminated in Masan's emergence as an exemplary example of Vietnam's consumer fascinating story in recent years.

Along with many potential stocks of Vietnam, this country is still expected to be one of the few countries to maintain a strong growth rate in 2023, while the rest of the world is forecast to experience a severe recession.