Dr. Kampon Adireksombat, First Senior Vice President and Team Head of the CIO Office at Siam Commercial Bank (SCBCIO), has forecasted that in 2024, Vietnam's economy will likely experience growth, propelled by the export sector and sustained foreign direct investment (FDI). The Vietnamese government has set ambitious targets for GDP growth, aiming for 6.0% - 6.5%, while also aiming to keep inflation within the range of 4.0% - 4.5%. SCB CIO anticipates three key factors driving the Vietnamese economy this year: 1) the recovery of the export sector; 2) the expected rise in FDI, alongside potential measures from Vietnamese authorities to assist companies following the implementation of the Global Minimum Tax (GMT), easing concerns among foreign companies; and 3) a probable uptick in domestic consumption, bolstered by monetary and fiscal easing measures, which are crucial for sustaining continuous growth in the Vietnamese economy.
While the real estate sector has displayed signs of gradual recovery, there remains a risk of bond payment defaults. However, after the government introduced various support measures—such as reducing the policy interest rate and allowing a two-year deferral for real estate debenture repayments—SCB CIO believes that the sector has likely surpassed its lowest point. Moreover, the passage of the Land Law draft by the Vietnamese legislature on January 18, 2024, ahead of market expectations for June 2024, is anticipated to further bolster the sector. This draft law, effective from January 1, 2025, will empower real estate developers to negotiate land purchase prices directly with landowners, eliminating the need for official price determinations, and thereby fostering a conducive environment for robust growth in Vietnam's real estate sector.
In terms of the banking sector, it stands to benefit from the economy's return to an upward trajectory. The State Bank of Vietnam (SBV) has set a loan growth target of 15% for the year, signaling confidence in the economic outlook. Despite the relatively high proportion of non-performing loans (NPL), the peak for the formation of stage 2 loans—those showing early signs of repayment weakness but not yet classified as NPLs—is likely to have passed. Consequently, provisions for the next period are anticipated to decrease, thereby supporting banks' operational performance in the upcoming period.
Dr. Kampon further indicated that SCB CIO has adjusted its view of the Vietnamese stock market from Neutral to Slightly Positive. This adjustment is due to the observed upward trend in the profitability of listed companies, which is expected to continue as exports recover and FDI continues to improve. Additionally, the gradual recovery of the real estate sector, coupled with the government's passage of the Land Law bill to enhance liquidity for real estate, has contributed to this adjustment. Moreover, the valuation of the Vietnam stock market presents an interesting opportunity, with the price-to-earnings multiple (P/E) currently trading at 10.1x, lower than the 5-year average by approximately -1 standard deviation. Furthermore, there exists the potential for the Vietnamese stock market to be upgraded to an emerging market status and included in the calculation of the FTSE index. The cancellation of the pre-funding system, which currently mandates foreign investors to hold 100% of the trading value in cash one day before completing a transaction, would enhance the likelihood of inclusion in the FTSE Emerging Market Index by 2024.
SCB CIO suggests considering investment in the Vietnamese stock market via funds employing a Bottom-Up strategy, while maintaining a cautious approach regarding portfolio allocation. Given the current classification of the Vietnam stock market as still relatively marginal or that of a newly developed country characterized by high volatility, investments in this market should be designated as part of an Opportunistic Portfolio—an additional portfolio tailored to prevailing market conditions. This Opportunistic Portfolio is typically allocated between 20% to 40% of the total investment portfolio. This allocation strategy accounts for the inherent volatility of the Vietnamese stock market, allowing investors to adjust proportions based on their risk tolerance levels. By segregating investments in this manner, any adverse outcomes in the Vietnamese stock market are less likely to significantly impact the Core Portfolio, which constitutes the primary long-term investment portfolio.
Source: Siam Commercial Bank