Essential consumer goods, industry and real estate are forecast to lead earnings growth in 2016 and push up the VN-Index, the key market gauge. Energy industry is projected to have weak growth, but no industry will decline this year.
The strategy report recently published by SSI Research, an analysis and research division of Saigon Securities Incorporation (SSI) delved into macroeconomic data and industry growth prospects on the Vietnamese stock market in 2016.
No industry with negative EPS growth
Among 10 VN-Index sectors classified by SSI Research, five sectors had negative EPS growth in 2015. However, the outlook seems brighter in 2016 when no industries are forecast to have a negative growth.
The worst-performing energy sector is forecast to grow by 1.4 per cent in 2016 despite crude oil price slumps. This was the worst performer in 2015 with an EPS drop of 32 per cent.
The non-essential consumer goods sector is projected to be the second worst performer with an EPS growth of 7 per cent after sliding 14.5 per cent in the previous year.
Meanwhile, the essential consumer goods sector will sharply reverse to lead growth this year. SSI Research forecasts that this sector, led by Vinamilk (VNM) - the largest stock by market capitalisation, will have an EPS growth of over 21 per cent in 2016 after sliding more than 11 per cent in 2015.
The second highest constituent in the basket of shares used to calculate the VN-Index with 23 per cent, the essential consumer goods sector is forecast to be the main driving force of the market this year.
Two other heavyweight sectors of the VN-Index, real estate (up 10 per cent) and industry (9 per cent), are expected to extend their strong growth momentums of last year and push up the market gauge. The industrial sector is considered the second strongest-growing sector of over 18 per cent, after just the essential consumer goods sector, while the property sector will jump nearly 18 per cent. In 2015, these sectors were the second and third fastest advancers of the market.
However, as for the banking sector, the heaviest weight of the VN-Index (accounting for 27 per cent), SSI Research holds a neutral stance although this sector’s EPS is expected to grow 17 per cent this year after dropping 20 per cent last year.
After recording a nearly 30 per cent growth last year, the materials sector is forecast to slow to just over 14 per cent this year .
The healthcare and information technology sectors will advance around 15 per cent, a little change from the previous year.
Thus, the profit picture of this year is significantly brighter than the previous year.
SSI Research said, in 2015, market drives changed dramatically as banking and essential consumer goods - two biggest constituents of the VN-Index, increased their shares from 23 per cent and 20 per cent to 27 per cent and 23 per cent, respectively, while the third largest constituent, energy sector, had have its share dropping from 16 per cent to only 8 per cent at the end of 2015. Thus, the real estate sector replaced the energy sector to become the third largest component of the VN-Index.
And though the banking sector’s EPS was estimated to fall 20 per cent in 2015 but bank stocks still climbed most on growing confidence in the this sector’s improvements.
Creating the foundation for economic growth in 2016
Sectoral performance improvement will be driven by more positive macro factors in 2016.
SSI Research said Vietnam’s growth model changed significantly. In the 2016-2020 period, its economic growth will not only depend on exports and investment but also on domestic consumption. As the middle-class population is expanding, estimated to increase from 12 million people in 2014 to 33 million people in 2020, the domestic demand will be one of main factors that help consume increased output (in addition to export factor) to ensure Vietnam’s growth of 6.5-7 per cent.
Meanwhile, domestic consumption is expected to improve as household debts remain low while bad debt ratio at banks is on the fall.
Domestic consumption becomes more important as Vietnam’s exports are volatile due to China’s economic slowdown.
Foreign direct investment (FDI) flows keep running into Vietnam and expected disbursement value in 2016 is hoped to be the same as in 2015 thanks to high commitments at in recent years.
SSI Research anticipated Vietnam’s GDP growth at 6.7 - 6.8 per cent a year in 2016-2017, marginally better than in 2015.
However, SSI Research said the growth may be higher as it is possibly driven by the degree of success of economic restructuring and the implementation of Trans-Pacific Partnership (TPP) Agreement.
In the near term, elections in 2016 will be the centre of attention because it is a prerequisite for political will of reform acceleration, including the loosened cap on foreign ownership in Vietnamese companies, quickened equitisation and listing of enterprises, and implementation of trade agreements.
Before recent volatility on foreign exchange market, SSI Research recommended investors closely track market development and predicted that Vietnamese dong may lose 3-5 per cent in 2016-2017. Factors that affect foreign exchange rate include China’s yuan depreciation, US dollar appreciation at the back of Fed’s decision on interest rate hike, and trade deficit in 2016-2017, and foreign exchange reserves.
SSI Research said budget deficit will have a certain impact. The budget deficit is forecast at 5-6 per cent of the country’s GDP in the 2016-2017 period, which may push up public debt to the upper limit of 65 per cent. And, the Ministry of Finance will focus on seeking solutions to deal with this deficit.
D.A
Vietnamese
