VNM on the Back of Unicorns, Beer & Films: Vietnam 2017 Forecast

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Splash. Vietnam glides fearlessly into a complex 2017.

In 2016, Vietnam saw highs and lows.  Its hopes of a Trans-Pacific Partnership (TPP) were dashed, but the country also experienced its first Olympic gold medal. Vietnam Airlines petitioned for its first ever direct U.S. flight, as startups rose in tech conferences across the nation. 2017 could be even more interesting.

As Vietnam moves higher up in the global value chain, it will begin adopting new growth models. We outline how these developments will play out in 2017 across Vietnam’s various economic verticals ranging from the stock market to startups to craft beers to films.

Executive Summary:

  • Increased global oil prices should help Vietnam, as the commodity accounts for the roughly 20-30% of Vietnam’s annual budget.
  • The end of the historic 2016 drought should help agriculture recover.
  • If Trump delivers on U.S. economic growth, Vietnam’s export should benefit, assuming zero to minimal new protectionist actions.
  • U.S. is the largest end-market for Vietnam’s textile ($8.6 billion), phones ($3.1 billion), electronics ($2.1 billion) and footwear ($3.3 billion) industries.
  • As Vietnam begins moving up the global value chain, stronger emphasis on automated manufacturing will lead industrial production.
  • Consumer confidence sailed to record levels in the second half of 2016. We expect that to continue in 2017 due to generally benign economic conditions.
  • Market reform and corporate efficiency initiatives start to bear fruit.
  • Foreign Direct Investment (FDI) should slow in 2017 as major investing partners (Korea, Singapore) are themselves facing economic slowdowns.

Trans-Pacific Partnership (TPP) Perhaps Still Alive


While many long-time Vietnam observers believe the TPP is dead, we do not agree.

President-elect Trump bills himself as a businessman and a deal maker.  He will recognize that the 11 TPP members have invested a decade in negotiating to this point. Analysts estimate that completely removing the agreement could cost the U.S. $42.7 billion in economic value, as well conceding ASEAN regional influence to China. Trump is in the driver seat to demand favorable terms for the US.  While the agreement may be officially “killed” in 2016, we strongly believe talks will likely re-open early next year after Trump makes his point and can negotiate for better terms.

Vietnam’s trade relationship with the U.S. accounts for nearly a quarter of its exports and 20% of its GDP. A complete protectionist move from the U.S. would be a nightmare scenario – but that is unlikely. Despite the possible termination of TPP, U.S. – Vietnam trade relations remain on good terms, and the rights of both countries are protected under the WTO accession agreements.

It should also be mentioned that even if the TPP were completely scrapped, Vietnam in the long-term could still benefit from China’s Regional Comprehensive Economic Partnership (RCEP), whose trade members account for 30% of global GDP and 50% of the world population.  As such, we are optimistic that Vietnam trade will remain robust in 2017.

The Stock Market


The VN 30, which is a Vietnamese index consisting of 30 of the highest liquidity stocks in Vietnam, is up some 9% in 2016.  We believe that the excitement stemming from the highly anticipated passing of the TPP and the possible implementation of the loosening of the foreign ownership limit worked together to lift the market.  Now that the TPP looks quite moribund and the foreign ownership limit has not been removed as quickly as anticipated, we think some of that tailwind may not be as strong in 2017.


We believe Trump’s muscular protectionist stance will put downward pressure on Vietnamese stocks in the early part of the year as US and European investors continue to withdraw capital, as can be seen in the $240 million year to date capital outflow referenced in the table above.  However, we believe by year end, Vietnam’s secular strong fundamentals will overcome the negative headwind to deliver about 5-7% return on the back of mid-teen EPS growth of 14%.

Time for Van Eck VNM?

Though VN30 has registered positive return, the VanEck Vectors Vietnam ETF (VNM) is down 7.2%. While we have our reservations regarding the ETF’s structural capability to capture VN30 movement, there may be an argument to consider VNM in 2017.  As value investors, all assets could be interesting at the right price with the right margin of safety.  VNM trades at 12x forward earnings and pays a 4% dividend in a market that is primarily zero-yield. As Vietnam reaps the benefits of record consumer confidence, higher value chains, and increased privatization, the ETF could see upside.  Investors can also explore the iShares MSCI Frontier 100 ETF (FM) MSCI Emerging Markets AsiaEEMA, which is up 2.17% this year.

For those who are able to actively invest in Vietnam, certain pockets hold very compelling growth. Technology for instance, is being propelled by the government’s 2020 broadband plans. Mobile World (MWG) and FPT Corp (FPT) saw their profits surge 46% and 22% year-over-year in 2016. Similar trends could lift both stocks over 30% in 2017, according to analyst estimates. Likewise, VNI darling VinaMilk (VNM) is still soaring on quarter-over-quarter volume growth of 21%. Further consolidation of its dominant market share could send its shares up 15% in 2017, according to Viet Capital Securities.

The Dong


DonaldTrump is expected to lead a rising U.S. economy with big spending projects and tax cuts. This could force the U.S. federal deficit to balloon and create upward pressure on inflation at a time of low unemployment. The long anticipated series of rate hikes would further strengthen the dollar. On Vietnam’s side, accommodative credit policies and rising education and healthcare costs will fuel inflation. We believe these developments will cause the dong’s recent slide against the USD to continue in 2017. The current official rate is $1 to 22,654.5 dong with the unofficial rate as high as 22,820.  With the strengthening of the USD, it is possible to see the dong hit 24,000 by year end 2017 implying a 5 percent depreciation from current levels.

GDP Growth

We believe 2017 represents steady economic growth for Vietnam.  While growth will continue, it may fall short of the government’s forecast of 6.8 percent.  Many of the problems that started this year will carry over in 2017.  In early October, Vietnamese Prime Minister Nguyen Xuan Phuc lowered the country’s economic growth target from 6.7 percent to 6.3-6.5 percent in 2016.

According to the framework of a socio-economic development plan for 2017 laid out by the Ministry of Investment and Planning, Vietnam aims to reach an annual economic growth rate of 6.8 percent in 2017 through higher labor productivity and greater competitive capacity. Year-over-year growth rates for separate industries are presented below. The country’s policymakers have also set a target of increasing its annual export value by 8 – 10 percent in 2017.


The potential demise of the Trans Pacific Partnership and continued slow recovery in the United States, the Euro area, and Japan presents a clear downside risk to the outlook. Uncertainty about the path of monetary policy in the U.S. and European economies, and the implications this has for capital flows, complicates macroeconomic management in Vietnam. The ever growing protectionism rhetoric could also undermine recovery in these major markets.

Start Ups

In 2016 Vietnam saw the launch of 500 Startups’ Vietnam Fund, Dragon Capital’s Vietnam Innovative Startup Accelerator (VIISA), and Ho Chi Minh City’s own $45 million startup fund. Given that one of the biggest challenges to Vietnam’s ecosystem was the funding gap, the inflow of prestigious investment capital and mentorship will be a strong boon in 2017. 2015 saw 70 venture capital deals, which was double the number in 2014. 2016 looks on track to continue the trend, and 2017 should be even more bountiful. In 2017, Vietnam may see its first unicorn in Vinagame, whose rumored $1 billion valuation will likely be confirmed.


2017 should see additional capital flow into startups.  This trend will further be accelerated by the Vietnamese government’s new law streamlining the establishment of domestic venture capital funds. Furthermore, under the draft law, the country’s funds supporting small to medium enterprises will be able to allocate 30 percent of their capital to startups.

One crucial factor left unaddressed however, is the ability of Vietnamese startups to bring in foreign talent. Legislation that loosens up that vertical will be essential for ecosystem growth.

Craft Beer

Vietnam is one of Asia’s largest beer markets, as well as one of its fastest growing. 3.8 billion liters were consumed in 2015, accounting for 94% of the country’s alcohol consumption. This beer-loving culture has grown volume at 6.4% and 5.7% CAGRs for the last ten and five years. Moving into 2017, Vietnam should see competition intensify between domestic and foreign players.


With TPP’s demise in the short-term, Vietnam may not have to remove taxes on imported beer. This would strongly benefit local behemoths Saigon Alcohol Beer & Beverages (SAB) and Vietnam Brewery Limited (VBL), and hinder the progress of foreign entrants AB-In Bev (BUD) and Sapporo (2501.T). We expect the entire market to grow 5% in 2017, fueled by a young median of 30 and rising disposable income. An estimated 1 million people are estimated to reach the legal drinking age of 18 every  year.  As such, we believe more new quality brands like Heart of Darkness to explode onto the scene.



Vietnam should also see continued involvement from Korean film giants. CJ CGV and Lotte collectively controlled 65% of screens and 70% of distribution in 2016. The Korean bellwethers grew their profits from Vietnamese assets 29.6% and 87.6% respectively – enticing further investment in 2017. Given that CJ CGV holds the rights to distribute Paramount, Disney, and Warner Bros. in Vietnam, their increase cinema advertising and sales promotions could push more American titles into Vietnam. Hollywood may finally have some success penetrating Vietnamese audiences’ unique comedic tastes and cultural norms.   We expect more transactions led by the Korean giants as well as new foreign players.




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