Clear Direction for Vietnam

— 15.03.2019

Real estate, stocks, bonds, bank deposits. The big picture is not as clear as one would hope for making sound investment decisions. It is easy to see that the US and Finnish stock markets have gone up for nearly a decade, which could indicate that the next 10-year stint could yield different returns. But this is where the picture gets murkier. A seasoned investor knows when stocks are cheap or expensive, but not even a stock market veteran knows how much the price of ‘expensive’ stock will rise or the price of ‘cheap’ stock will fall within a given time frame.

In interest rates, the traditional premise was that zero is the bottom, but even they have dipped into negative territory. Equity valuation levels and company-specific P/E ratios are of course easy to verify but predicting the right timing for an equity investment is much more difficult than before, taking into account today’s concerns about various macroeconomic, geopolitical and trade policy scenarios and their consequences.

The close-to-zero economic growth, public debt, the exhausted stimulus measures, the trade deal between US and China, potential stimulus measures by China, the EU’s trade deals, FED and ECB, and Brexit. We may also be facing long-term staggering in stock markets – for the next five years even – if there is no success in hiking interest rates, if the key economies cannot gather proper growth momentum, or bring about a substantial downturn and, as a result, a stock market crash. Even more so, if the most substantial improvement potential in listed companies’ profit margins is already behind us and the current valuation levels are reflected in the stock prices.

In Vietnam, the picture is pretty clear. The Vietnamese economy will grow at a solid rate for the next 10 years. The stock market will of course experience some hiccups from time to time, but the overall direction is upwards: at times, it will be the large caps carrying the index, at time the small ones, at times the dividend stocks, at times the growth companies, at times the banks, at times the consumer sector, at times the energy sector, and so on. The growth outlook for the Vietnamese economy translates into excellent earnings growth outlooks in all the country’s home market sectors. Stock markets sometimes tend to reward such long-term earnings growth expectations with substantial stock price hikes, as the equities would otherwise become undervalued. On top of all this, it is clear that the Vietnamese securities market will continue to become modernized and we will see substantial changes over the next few years.

The Vietnamese economy will double in size over the next decade. The Vietnamese will see their pay rise by 10% each year. The population of Vietnam will grow by 5.5 million every 3.5 years. The volume of car trade will grow 20 to 30% annually over the next 10 years. The fee-based income of Vietnamese banks currently amounts to 0.3% of the banks’ balance sheets; this figure will grow close to 1% over the next decade. Both Hanoi and Saigon will start up subway systems within 10 years. Hanoi will host the city’s first Formula 1 Grand Prix next year. The US president Donald Trump and the North Korean leader Kim Jong-Un will hold meetings in Hanoi this week, as will PYN Elite’s Portfolio Manager. Though for the Portfolio Manager, it will be strictly business with corporate executives.

The link below will take you to our analyst team’s summaries on sector-specific outlooks for the PYN Elite portfolio.
PYN ELITE KEY SECTORS