A few steps moving close to Emerging Markets upgrade

Figure 61: The current VN-INDEX’s P/E is about 9% discount from its peak in Jun (data as at 06/12/2021)

Source: BLOOMBERG, VNDIRECT RESEARCH

Figure 62: Vietnam stands out as markets which are cheap compared to their earnings FY21-23 growth potential (data as at 06/12/2021)

Source: BLOOMBERG, VNDIRECT RESEARCH

Overall, we expect the VN-Index to reach 1,700-1,750pts within 2022F, based on following assumption: (1) we expect VN-Index’s P/E to be around 16.0-16.5x at year-end of 2022, (2) we forecast corporate earnings across the VN-Index to grow by 23% yoy with 2022F VN-Index dividend yield at 1.4%. Potential re-rating catalysts include: (1) sooner-than-expected reopening of aviation and tourism and (2) the inclusion of Vietnam’s stock market into the FTSE Secondary Emerging Market in annual country-reclassification in Sep 2022. Downside risks include: (1) aggressive inflationary pressure may cause the Fed to raise interest rates earlier-than-expected, which could lead to further net capital outflows from emerging and frontier markets; (2) higher-thanexpected inflation pressure in Vietnam may cause the SBV to reverse its monetary easing policy and (3) lower-than-expected earnings growth of listed companies.

A few steps moving close to Emerging Markets upgrade Vietnam tries to remove bottlenecks from Clearing and Settlement

Vietnam is in the preparation stage to officially put into operation the Vietnam Exchange (VNX) in 1H22. This is the focal point for general management of Vietnam's stock market, replacing the current model of two separate exchange with Ho Chi Minh City Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX). In addition, Vietnam is cooperating with South Korean partners to upgrade the securities trading system, which is expected to be completed in 1H22. The government also plans to establish the central counterparty clearing house (CCP) (under VNX), which is expected to solve pre-funding issues that both FTSE and MSCI have considered a bottleneck in upgrading Vietnam's stock market to Emerging Markets status. The new trading system also helps Vietnam conduct daily trading and sell pending stocks, which could further boost foreign inflows.

We expect Vietnam’s stock market to be announced to include in FTSE Secondary Emerging Market Index in Sep 2022

In our best case scenario, we expect that the announcement of the inclusion would come in the Sep 2022 annual country-reclassification. For base case scenario, we expect Vietnam’s stock market to be announced to include in FTSE