Vietnam’s GDP growth hit 7.7% in Q2 2022, lifting growth in H1 2022 to a three-year high of 6.4% YoY and we expect the solid recovery momentum to continue with robust economic growth in H2 2022 from a low base in H2 2021. While domestic recovery is tracking ahead of our expectations, risks to external demand from slowing global growth and to Vietnam’s terms of trade from higher oil prices have increased. We therefore maintain our forecast for 7.2% GDP growth in 2022 and 7.0% in 2023. 

Despite rising inflation globally, Vietnam’s inflation remained under control with average CPI in H1 2022 at 2.25%. We maintain our average CPI forecast at 3.5% for FY2022, implying average inflation of around 4.5% in H2 2022, and we forecast bank deposit rates to increase by 50bps in 2022 and another 50bps in 2023. The VND depreciated 2.0% against the USD in H1 2022 and we forecast the VND to depreciate by 2.5% against the USD in 2022 (vs our forecast of 1.0% in March 2022) due to tightening US monetary policy and a strengthening USD. 

We believe that Vietnam continues to offer one of the strongest structural growth outlooks among developing economies, led by industrialization and urbanization, and we remain bullish on the market. However, we lower our VN-Index targets from 1,700/1,900 to 1,450/1,800 for end-2022/23F, respectively. Revisions to our coverage earnings forecasts following Q1 2022 results were slightly positive for 2022F (+3%) but slightly negative for 2023/24F (-2%/-4%), and the headwinds from stronger-than-expected inflation and policy tightening globally have resulted in some moderation in our analysts’ target price projections. Our VN-Index EPS growth forecasts of 29%/16%/16% for 2022/23/24F, respectively, are slightly above consensus at 17%/22%/17% on a 3Y compound growth basis.

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