Macroeconomic outlook

- Vietnam’s cyclical recovery progressed in H1 2024, broadly in line with our expectations set out in our January 2024 strategy report. Exports continued to recover. FDI disbursements increased. International tourist arrivals recovered further. There were tentative signs of improvement in the real estate market and policy remained broadly supportive. GDP grew 6.9% YoY in Q2 2024 (up from 5.7% YoY in Q1 2024) and 6.4% YoY in H1 2024. CPI inflation averaged 4.08% YoY in H1 2024.

- We maintain our 2024/25/26F GDP growth forecasts at 6.5%/6.8%/7.0%, respectively. A sustained recovery in exports and industrial production should lead to a tighter labor market and improving consumer confidence, underpinning our assumption for improving domestic consumption in H2 2024 and 2025. While we do not expect a strong pick up in domestic private sector capex in 2024, overall investment should remain supported by seasonally stronger public sector investment in H2 2024 and growth in FDI disbursements.

- We maintain our forecast for the SBV to raise policy rates once in late 2024 and once in 2025 as the recovery cycle progresses. With the start of an easing cycle from the Fed and robust inflows from a current account surplus, FDI inflows and remittances, we believe the VND should appreciate slightly vs the USD by the end of 2024. We maintain our forecast for the VND to depreciate by 3.0% vs the USD in 2024 and remain stable in 2025&26.

Market outlook

- The VN-Index gained 10% in local currency terms and 5% in USD terms in H1 2024 as the economy continued to improve, supporting expectations for a recovery in corporate earnings in 2024/25, and bank deposit rates remained close to historical lows. We remain bullish on the market and maintain our 2024/25F VN-Index targets at 1,350/1,550, respectively.

- The main risks to our positive outlook are: 1) Weaker-than-expected export performance if the recovery in exports fades; 2) Vietnam’s pro-growth domestic policy stance is derailed, for example if resurgent inflation or unacceptable depreciation in the VND provokes the SBV into tightening policy aggressively, or bureaucratic gridlock impedes recovery in residential real estate or infrastructure development; 3) Geopolitical developments lead to unfavorable increases in commodity prices or trade tariffs that impact Vietnam.

Sectors & stocks

- Among larger cap sectors, we continue to recommend overweighting banks and consumer stocks. Accelerating GDP growth should lead to stronger demand for credit and improving asset quality for banks. Meanwhile, valuations remain attractive with our coverage aggregate P/BV at 1.5x, between 0.5SD and 1SD below its seven-year average. Consumer stocks performed well overall in H1 2024 as operational metrics started to improve and the market anticipated further recovery. However, we believe the long-term structural growth outlook remains bright and we still see value in the sector. 

- Our top picks from our analysts’ recommendations are: MBB, STB, VPB, ACB (banks); FRT, MSN, PNJ, SAB (consumer); FPT (technology); KDH, NLG (real estate); IDC, KBC (industrial parks); HPG (materials); STK (industrial manufacturers); SCS (transportation & logistics); PVS, BSR (oil & gas); QTP, TDM (power & water).  

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