Stress test year for Vietnam’s investors

— 23.11.2022

We have experienced an unexpected and very peculiar year in Vietnam. In 2022 the stock market of Asia’s fastest-growing, most competitive, and the least-indebted country has faced a total crash. In a year of excellent earnings growth, the Vietnam stock market has plummeted 40%, while at the same time the ASEAN markets witnessed declines of only a few percent.

The reasoning for the slump in Vietnam is exceptional. The financial regulators decided to go ahead with the disciplinary measures this year when the investors already were on shaky ground due to global uncertainties. We do agree that the administration’s measures are welcome and justified. These actions are targeted at a group of few, that includes a lawyer who is the well-known manipulator of the stocks of his companies for years and some real estate companies that have been guilty of shady land deals and unethical practices in marketing of corporate bonds.

Unfortunately, these discipline measures have created collateral damage, and retail investors’ confidence in the bond market has dropped to the bottom. The corporate bond market liquidity has been frozen, and lots of stocks have faced forced sales while being used as collateral for the bonds. Uncertainty in the market also pushed Vietnamese businesses to convert sizeable amounts of the local currency for US dollars, causing a flash devaluation of the dong.

The Vietnamese authorities are well aware of all the negative side effects of the discipline measures, and last week a list of actions to restore confidence in the financial markets became public. There is new hope for the better, and there is a good reason to believe that Vietnam’s Index will be heading higher in the next 12 months.

On the other hand, the Vietnamese administration will continue to try to maintain law and order in the financial markets, and there will certainly be no amnesty for those who acted unethically. Let’s keep in mind also that the Vietnamese administration has very consistently for a couple of decades aligned its key policies towards pro-business. Vietnamese administrators are able to correct these self-inflicted wounds so that the problems do not reach Vietnam’s extensive business sectors, which are the basis of healthy growth.

The Vietnamese government is targeting +6.5 percent GDP growth for 2023. Our take is that likely near-term weakness of EU and US demand will take its toll on Asian exports to these markets. Our estimate for Vietnam’s GDP growth in 2023 is slightly lower, +5.5 percent.

In the table, we have compiled information about the financial markets and macroeconomics of Vietnam, Thailand, Malaysia, Indonesia, and the Philippines. A few key notes :

  • Asian currencies have devalued due to the extremely strong dollar and the prospect of fast-paced interest rate hikes in the USA. When the expectation of further interest rate hikes moderates, there could be a countermovement to the over-valued dollar.
  • Vietnam’s stock market has the strongest earnings growth outlook, but it has slipped to the lowest valuation ratios.
  • Vietnam’s listed companies are solid. The net D/E ratio is a very moderate 19.4%.
  • Vietnam’s exports have grown strongly YTD 2022 (+14%), but we expect export growth to weaken in the next six months.
    Our outlook for the earnings growth of Vietnamese listed companies for this year is +20-25% and for 2023 +18%.


Important information regarding the text and the Fund

The attached publication is marketing material and should not be regarded as a recommendation to subscribe or redeem units of the PYN Elite Fund. Before subscribing please familiarize yourself with the Key Investor Information Document, the Prospectus and the Rules of the Fund. The material presented in this text is based on PYN Fund Management’s view of markets and investment opportunities. PYN Elite Fund (non-UCITS) invests its assets in a highly allocated manner in frontier markets and in a small number of companies. This investment approach involves a larger risk of volatility compared to ordinary broadly diversified equity investments. The value of an investment may decline substantially in unfavorable market conditions or due to an individual unsuccessful investment. It is entirely possible that the estimates of economic development or a company’s business performance presented in this presentation will not be realized as presented and they involve material uncertainties.


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