Vietnam equity performance remained resilient whilst market turnover continued to climb. The 30-day moving average daily turnover more than doubled from the level seen early this year to reach around USD 850 million in September. Analysts suggested the rising liquidity was driven by local individual investors. SSI Securities believe there are three key elements leading the return of retail interests: (1) Deposit rates offered by state-owned banks have dropped by 30-50 basis points in August alone, back to a low range since 2021. (2) The implementation of Circular 06 in September allows the refinancing of mortgages, which may help boost liquidity in the stock market. (3) The latest meeting of Vietnam State Securities Commission revealed that the authorities have strong desire to help upgrade the stock market to the emerging market status via key reforms on settlements and companies’ foreign ownership. Following the recent visit of President Biden in Hanoi, the enhanced bilateral relationship between Vietnam and the US may bring enormous business opportunities for Vietnamese companies. Fundamentally, the market is trading at an estimated PE of 13.9x in 2024 with 29.6% in earnings growth.

BloombergNEF has recently increased its annual forecast of global solar power installation this year to 391,871MW from 343,745MW that was estimated a few months ago. The upward revision is mainly driven by the acceleration in China, which is expected to complete 96% more in capacity this year as compared with 2022’s level. China is rolling out policies to secure healthy development of the solar market, including green electricity certificates. The government is also clarifying regulations on what land can be used for solar. A recent update to the Renewable Portfolio Standards raises targets for most provinces. Provincial solar markets are developing in different ways. Hubei and Yunnan, where land is plentiful, are building a lot of utility-scale while southeastern provinces like Henan, Shandong, Anhui and Jiangsu are building residential and commercial solar. Some governments are already taking steps to make the rooftop solar boom more sustainable, by increasing the barriers to getting approval or grid connection or by requiring small solar projects to have attached storage.

China’s sales of new-energy vehicles (NEV), including pure battery electric vehicles and plug-in hybrids, went up 31.9% YoY in July to reach 641k units despite the overall auto market fell 2.6% YoY to 1.79m units. The NEV penetration rate is standing at a record 35.8% last month, on track to achieve 35% for the full year and about 50% in 2025. During the first half of this year, sales of China-produced NEVs reached 3.65 million, up 48% YoY and accounting for more than 60% of the global NEV market, according to China Passenger Car Association. Indeed, data from China's General Administration of Customs showed that China exported 2.34m vehicles in the first six months, while Japan exported 2.02mn vehicles, according to the Japan Automobile Manufacturers Association. This is the first time China has overtaken Japan in automobile export at the half-year mark. Industry analysts said that the strong momentum will persist in the following months, so it is highly probable that China will become the world’s largest exporter of all types of vehicles in 2023.

Renminbi internationalization remains on track despite the rising geopolitical risks. According to the latest data from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the share of RMB in global payment currencies increased to 2.77% in June, up for five consecutive months, making it the fifth most active currency in the world. Compared with two years ago, the share of RMB payments increased by 31 basis points. In June, the top four major currencies in the world were US dollar, euro, British pound and Japanese yen, accounting for 42.02%, 31.25% and 6.88%, and 3.36%, respectively. Meanwhile, the Ministry of Finance recently announced that it will issue RMB 12 billion treasury bonds, comprising tranches of RMB 6 billion two-year, RMB 4 billion three-year and RMB 2 billion 10-year bonds. Sheng Songcheng, former director of the Survey and Statistics Department of the People's Bank of China, believes that the regular issuance of offshore RMB government bonds is of positive significance to increasing the supply of RMB assets in Hong Kong and improving the offshore RMB yield curve.

Chinese banks were put into the spotlight after Goldman Sachs downgraded the sector and revised down the earnings estimates. Investor concerns were rising over the repayment capabilities of the debt-laden local government financing vehicles. The National Administration of Financial Regulation, however, communicated with several of the largest Chinese banks to respond to the negative comment, showing keen interests in the capital market reaction seemingly. Fundamentally, the domestic lending market has improved in June with new RMB loan recorded a solid RMB 3,050 billion in June, better than the consensus of RMB 2,384 billion. Both corporate and household new medium-to-long term loans also increased. More importantly, investors should be mindful how much of all these negatives have been priced in. In the A-share market, the sector is trading at an average of 4.3x in PE, 0.5x in PB, and close to 6.3% in dividend yield for 2023 fiscal year. The financial sector is the most heavily weighted exposure (~35%) at Premia CSI Caixin China Bedrock Economy ETF (2803.HK), which has outperformed the mainstream indexes such as CSI300 and FTSE A50 by over 10% points year-to-date. 

Vietnam stock market is one of the best performers in the region in June, supported by the sharp increase in trading activities indicating a return of investors’ interests. The average daily turnover of Ho Chi Minh Stock Exchange picked up steadily since the beginning of the second quarter of this year and accelerated in June, reaching USD 652 million which was almost double from the rough seen in March. Analysts believe the attractive valuation, reduced deposit rates, and the government’s stance in bolstering economic growth are the positive catalysts. Fundamentally, Vietnam is expected to be one of the fastest growing emerging markets in Asia over the next 5 years, according to S&P Global Market Intelligence. The key drivers include (i) low manufacturing wage costs; (ii) large and well-educated labor force; (iii) strong FDI inflows and domestic infrastructure spending; and (iv) multinational manufacturers diversify production capacity and favor Vietnam as one of the key locations.

China’s top 100 developers in May recorded property sales of CNY 485 billion, up 6.7% YoY but down 14% MoM. The moderated number seems to be in line with the low market expectations. About 70% of the top 30 had annual sales growth, with China Resources Land, China Merchants Shekou Industrial Zone Holdings, and Binjiang Real Estate Group reporting a more than 50% increase. In the first five months of the year, sales by the top 100 developers rose 9.1% YoY, with Poly Group ranked the first with sales of CNY 196 billion. Analysts now expect policy relaxation would trigger a re-rating on the sector, as current valuation of both stocks and bonds have largely priced in the worst-case scenario. Investors are now looking for a central government-led coordinated policies to restore market confidence, including stimulating first-time home purchase demand, reducing broad based mortgage rates, lowering down-payment ratio, and providing liquidity/financial guarantee to struggling developers for ensuring projects completion.

Amidst the negative media noise over recent Chinese economic data, the IMF’s latest forecasts of China’s nominal GDP relative to the US and the Euro Area provide a useful longer-term view.

The trajectory of the Chinese economy vis-à-vis the biggest Developed Market economies is clear. This is a case of “the more things change, the more they stay the same” – China is still on track to become the world’s largest economy in the next decade or so.

The above chart tracks the IMF’s forecasts for the nominal GDPs of the US, China and the Euro Area until 2028. We apply the same trend growth rates used by the IMF to project through to 2036.

The results are not surprising – this has been widely expected for quite some time – but worth updating and reiterating.

On the IMF’s forecasts, China’s nominal GDP relative to the US is likely to grow from 71% last year to 85% by 2028. Projecting on the IMF’s forecast growth trajectory, China’s nominal GDP overtakes that of the US by 2034.

It is worth noting that the IMF’s forecast growth for the US of around 4% a year from 2025 to 2028 is a bit higher than the US Congressional Budget Office’s forecasts for the same period. The CBO’s forecasts are in the 3.5%-3.8% range.

On the same combination of IMF forecasts to 2028 and our projection to 2036, the Euro Area’s nominal GDP would go from 78% of China’s nominal GDP in 2022 to 44% by 2036. And the “delta” in China’s nominal GDP between 2031 and 2022 – just nine years – would be roughly equal to the entire nominal GDP of the Euro Area last year.

Three out of five emerging ASEAN countries’ manufacturing PMI remained expanding in April, unlike the North Asia countries that are mostly contracting. Thailand’s PMI even rose to 60.4 reaching an all-time high. The overall higher PMI in emerging ASEAN countries may indicate their underlying economy is still strong, despite interest rate hikes by the central banks, as companies move some of their factories to these countries to diversify supply chain risk. Although Malaysia CPI has weakened more than expected to 3.4% YoY, Malaysia’s central bank still unexpectedly raised its benchmark interest rate by 25 bps. The emerging ASEAN equities market may be a good tool to diversify portfolio risk given the US regional bank turmoil and its possibility of entering into a recession. Investors, who would like to capture the growth of emerging ASEAN countries and diversify their portfolio risk, may have a look at our Premia Dow Jones Emerging ASEAN Titans 100 ETF (2810.HK), which targets the 100 largest and most established companies in Thailand, Malaysia, Indonesia, The Philippines and Vietnam, based on market cap, revenue, and net income, with no more than 8% and 25% in each company and country, respectively.

China's Q1 GDP grew faster-than-expected at 4.5% YoY, while retails sales in March jumped 10.6% YoY and reversed the downtrend in the past few months. Economists continue to revise up their forecasts on the country’s GDP growth for 2023. JPMorgan upgraded its full-year estimate to 6.4%, citing a notable rebound in travel-related consumption and services, front-loaded macro policy support, stronger-than-expected export sector performance, as well as earlier-than-expected bottoming out of housing activity. Citi and UBS also lifted their numbers to 6.1% and 5.7%, respectively. Fixed asset investment in Q1 was up 5.1% YoY, slightly below the consensus of 5.7% YoY, leading to speculation of rolling out stimulus to boost growth. China’s inflation environment provides room for further loosening policies to support growth, as the latest CPI dropped to 0.7% YoY in March from 1% in the prior month. For investors, China market seems to be in a Goldilocks scenario, with economy surprising on the upside whilst inflation surprised on the downside.