Vietnam’s Economy Is on Fire. Why Its Stocks Aren’t.
Vietnam is a rapidly emerging economic power. So, why isn’t it an emerging market?
The index gatekeepers at MSCI are sticking with the country’s “frontier market” status for the foreseeable future, preventing many emerging markets funds from investing there—and for good reason.
President Joe Biden singled out Hanoi for an Asian state visit this week, mostly to cement a 100-million-strong strategic counterweight to neighboring China. A brace of tech executives accompanied the president to explore further investment.
No wonder. Vietnam is visibly moving up the electronics value ladder as manufacturers seek alternatives to China. Apple AAPL –0.42% ’s (ticker: AAPL) suppliers are reportedly upgrading local production from simpler accessories to OLED screens. Rival Samsung Electronics (005930.Korea), which already produces half of its smartphones in Vietnam, recently rolled out a $220 million research-and-development center in Hanoi.
Vietnam is nibbling at China’s supremacy in the semiconductor supply chain with new investments by packaging/testing specialist Amkor Technology (AMKR) and data infrastructure provider Marvell Technology (MRVL), says Dylan Patel, chief analyst at SemiAnalysis.
Vietnam’s economy will grow nearly 5% this year even as export markets contract, then rebound to 6% by 2025, according to the World Bank. The case for Vietnamese stocks is a lot shakier. There still aren’t many to choose from, 35 years after Communist leaders launched market reform: About 50 companies have a $1 billion-plus market cap, says John Paul Lech, a portfolio manager at Matthews Asia.
“The very exciting top-down story suffers from market breadth and access in the bottom-up perspective,” he says.
Multinationals dominate the burgeoning export sector, accounting for three-quarters of Vietnam’s foreign sales. That leaves a domestic bourse overly exposed to banks and real estate developers (half of the market cap), which in turn are exposed to financial and administrative growing pains.
The VanEck VietnamVNM –0.73% exchange-traded fund (VNM) crashed by nearly half last year as domestic uproar compounded the global markets slump. The government clamped down clumsily on a frothy real estate bond market and threw a number of tycoons in jail on vague corruption charges. Both moves spooked the key financial sector.
The market has regained a third of its lost ground this year as Hanoi slowed down the purge and bolstered banks with liquidity. “Vietnam’s Communist Party has shown it isn’t marching down the same road as China’s,” says Jonathan Binder, chief investment officer at frontier markets specialist Consilium Investment Management. “They handled the property sector situation deftly.” Neither is Hanoi marching toward emerging market status, however. The main roadblock is limits on foreign ownership, set at 30% for banks and 49% for other listed companies. That’s a deal killer for MSCI.
Thailand offers precedent for a workaround with nonvoting depositary receipts that don’t count toward the foreign ownership cap, says Bill Stoops, chief investment officer at Hanoi-based Dragon Capital . Vietnam’s leaders are still thinking about it. “Rerating of the market to much higher Southeast Asian valuations seems unlikely until we go into the MSCI-EM index,” he says.
Closing Stock Market Summary
The stock market registered sizable declines on this quarterly options and futures expiration day. The S&P 500, Nasdaq, and Russell 2000 gave back all their gains for the week while the Dow Jones Industrial Average narrowed its weekly gain to a modest 0.2%. The major indices all closed near their worst levels of the session, which had the S&P 500 and Nasdaq below their 50-day moving averages.
Many stocks participated in downside moves, but mega caps and growth stocks had an outsized influence on index performance. The Russell 3000 Growth Index fell 1.6%. The Vanguard Mega Cap Growth ETF (MGK) fell 1.7% versus a 1.2% decline in the S&P 500. Meanwhile, the Invesco S&P 500 Equal Weight ETF (RSP) closed down 0.8%.
Weak semiconductor stocks also weighed heavily on index performance. That weakness followed Arm's (ARM 60.75, -2.84, -4.5%) successful IPO yesterday and a Reuters report that Taiwan Semiconductor Manufacturing Co. (TSM 89.25, -2.22, -2.4%) is delaying chip equipment shipments. The PHLX Semiconductor Index fell 3.0%.
Rising market rates and oil prices ($91.00/bbl, +0.74, +0.8%) contributed to the negative bias. The 2-yr note yield rose three basis points today, and seven basis points this week, to 5.04%. The 10-yr note yield rose four basis points today, and seven basis points this week, to 4.33%.
All 11 S&P 500 sectors closed in the red. The utilities sector (-0.5%) led the relative outperformers while the information technology sector (-2.0%) saw the steepest decline. The latter was weighed down by weak mega cap and semiconductor components, along with a big loss in Adobe (ADBE 528.89, -23.27, -4.2%), which underwhelmed with its fiscal Q4 guidance.
Notably, General Motors (GM 33.95, +0.29, +0.9%) and Stellantis (STLA 19.25, +0.41, +2.2%) registered gains despite failing to reach a deal with the UAW, which resulted in targeted strikes at three manufacturing plants (one for each of the automakers). Ford (F 12.61, -0.01, -0.1%) for its part logged a small decline.
Nasdaq Composite: +31.0% YTD
S&P 500: +15.9% YTD
S&P Midcap 400: +5.6% YTD
Russell 2000: +4.9% YTD
Dow Jones Industrial Average: +4.4% YTD
Reviewing today's economic data:
August Import Prices 0.5%; Prior was revised to 0.1% from 0.4%
August Import Prices ex-oil -0.1%; Prior was revised to -0.1% from 0.0%
August Export Prices 1.3%; Prior was revised to 0.5% from 0.7%
August Export Prices ex-ag. 1.7%; Prior 0.6%
September Empire State Manufacturing 1.9 ( consensus -10.0); Prior -19.0
August Industrial Production 0.4% (consensus 0.2%); Prior was revised to 0.7% from 1.0%; August Capacity Utilization 79.7% (consensus 79.3%); Prior was revised to 79.5% from 79.3%
The key takeaway from the report is that motor vehicle assemblies were weak in front of what is now a UAW strike, so the outlook for industrial production in September will be constrained by an expected disruption to auto manufacturing capabilities as a result of the strike.
September Univ. of Michigan Consumer Sentiment - Prelim 67.7 (consensus 69.4); Prior 69.5
The key takeaway from the report is that consumers' inflation expectations came down. That is something the Fed will like to see, but one is left to wonder if those expectations will remain in check if gas prices continue to increase.
Looking ahead, Monday's calendar features the release of the September NAHB Housing Market Index (prior 50) at 10:00 a.m. ET and July Net Long-Term TIC Flows (prior $195.9 billion) at 4:00 p.m. ET.
UAW confirmed thousands of UAW members at Ford, GM, and Stellantis walked out, marking the beginning of the Stand Up Strike.
- UAW members at GM Wentzville Assembly, Local 2250 in Region 4 are ON STRIKE.
- UAW members at Stellantis Toledo Assembly Complex, Local 12 in Region 2B are ON STRIKE.
- UAW members at Ford Michigan Assembly Plant -- Final Assembly and Paint, Local 900 in Region 1A are ON STRIKE.
Early premarket gappers
-
Gapping up:
- NVX +15.6%, IOVA +11.1%, MITK +5.9%, PDS +2.4%, VLRS +2%, ORCL +1.8%, TKC +1.7%, JBHT +1.2%, HST +1.2%, WPC +1.1%, VTLE +0.9%, PTCT +0.9%, NVS +0.7%, MNSO +0.7%, DIS +0.6%, RBLX +0.5%
-
Gapping down:
- PLTK -5%, HGBL -2.9%, NUE -2.8%, COF -2.7%, DAWN -2.3%, ADBE -2.1%, F -1.7%, GM -1.4%, CNM -1%, STLD -0.9%, X -0.7%
Russia Seeks to Expand Naval Presence in the Mediterranean
U.S. officials expected to visit Libya to lobby against Russian presence
As the U.S. and Russia vie for greater influence in Africa, Moscow is seeking access for its warships to a Mediterranean port in Libya that could expand its naval footprint in the North Atlantic Treaty Organization’s backyard.
Senior Russian officials, including Deputy Defense Minister Yunus-Bek Yevkurov, met with Libyan warlord Khalifa Haftar in recent weeks to discuss long-term docking rights in areas he controls in the war-torn country’s east, according to Libyan officials and advisers. The Russians have requested access to the ports of either Benghazi or Tobruk, the Libyan officials and advisers said, both of which are located less than 400 miles from Greece and Italy.
The talks with Haftar over port access come as the Kremlin seeks to deepen its influence in Africa and outmaneuver the U.S., which has been pressing African states to join the Western alliance in isolating Russia over its invasion of Ukraine.
Russian military and security groups loyal to the Kremlin are also moving to take control of the Africa-based military units and assets belonging to the Wagner paramilitary group in the wake of the death of its founder, Yevgeny Prigozhin, last month. Prigozhin built a presence in a half-dozen countries in the Middle East and Africa, counting some 6,000 fighters who have often provided security to local political leaders, sometimes in return for access to valuable resources.
A joint U.S. diplomatic and military mission is expected to visit Libya later this month to press Haftar to expel Wagner’s mercenaries and encourage him to unify his forces with those controlled by rival factions. The U.S. hopes that would create a buffer zone to rising turmoil in the Sahel, the swath of land that has seen a surge in jihadist activities and a series of coups toppling governments there, say people familiar with the planned trip.
Michael Langley, the commander of the U.S. Africa Command, and Richard Norland, the U.S. special envoy for Libya, are expected to separately meet with Haftar and Abdul Hamid Dbeibah, who heads the internationally recognized government based in Tripoli in the country’s west.
A spokesperson for the State Department declined to comment. The U.S. Africa Command didn’t return a request for comment.
Russia’s outreach in Africa appears to have put the West on the defensive in parts of the continent. Over the summer, the U.S. unsuccessfully tried to engineer an end to a deadlock in Niger, where a pro-Russian junta has taken over. The military coup has spurred fears that the U.S. strategy for taking on Islamic militants in the region had been upended, but a U.S. Air Force commander said the U.S. has resumed flying drones for its Niger counterterrorism mission.
“The Russians are in an aggressive expansion mode and the U.S. is just trying to maintain” its footprint in Africa, said Cameron Hudson, a former chief of staff to the U.S. special envoy for Sudan.
Analysts say the Russian advance would allow Moscow to control key energy corridors that could have served as alternatives to its own supplies to Europe. It would also enable the Kremlin to expand its global confrontation with the West.
Libya was Wagner’s first foray into Africa, and Haftar had been a key regional partner for the group. About 1,200 Wagner fighters are stationed in Haftar’s facilities, including at an air base used as a transit hub to other African countries.
Russian officials have told Haftar, whose Libyan National Army controls war-torn Libya’s east, that access to the ports in Benghazi or Tobruk would allow them to refuel, resupply and repair their naval vessels, the Libyan officials and advisers said.
The two ports already have the infrastructure that would support Russia’s requirements. It remains unclear if Moscow wants to further develop the facilities to station personnel, warehouse ammunition or store other supplies there.
While Russia’s request for docking rights in eastern Libya doesn’t immediately pose a threat to NATO members, the concern is that Moscow could eventually scale up its presence there, analysts say.
NATO follows Russian naval movements closely, according to the alliance’s spokesman, Dylan White. “NATO has substantially increased its presence in the Mediterranean, including with the persistent deployment of a U.S. carrier strike group” since Moscow’s invasion of Ukraine, he said.
While commercial ships can mostly access ports globally without any long-term contracts, access for naval vessels usually requires bilateral agreements. Permanent docking rights are different from full-fledged bases, which usually entail sovereign jurisdiction.
A spokesman for the LNA said he didn’t have any information on Haftar’s discussions with Russian officials over port access. Libya’s Gadhafi regime in 2008 offered Russia access to the ports, but Moscow declined at the time.
It wasn’t immediately clear if Haftar, who has been under pressure from the U.S. to sever ties with the Russians, would accept Moscow’s proposal to dock its naval vessels in either of the ports.
The Kremlin didn’t respond to a request for comment.
Russia, which already controls Syria’s eastern Mediterranean port of Tartus, deployed Slava guided-missile cruisers there immediately after its full-scale invasion of Ukraine in February 2022. At the time, the deployment was interpreted by European nations as an attempt to intimidate NATO.
Libya has been racked with violence since a 2011 uprising ousted longtime dictator Moammar Gadhafi. Armed groups and foreign powers have vied for power since, with a civil war breaking out in 2019. The country remains split between factions in the east and west.
Russia has influence over Haftar, as it offers the warlord protection from Turkish-backed factions based in western Libya. During the meeting with Haftar, Yevkurov agreed to assist Haftar with spare parts, repairs and training for his aging Russian aircraft fleet, people briefed on the meeting said.
Eastern Libya is a vital transit point for Russian aircraft flying from Russia or Syria to sub-Saharan Africa. Current and former African, Russian and Western officials say the deployment of Wagner’s mercenaries in Mali and the Central African Republic wouldn’t have been possible without access to Haftar’s air base. Moscow is also in discussions to set up an air hub in the Central African Republic, according to that country’s security adviser, Fidele Gouandjika.
The chaos in the Sahel is fast turning to Russia’s advantage. In Niger, Wagner has offered help to coup leaders. In Chad, the group’s mercenaries continue to back rebels against the regime of Mahamat Deby. And in Sudan, Wagner started working with militia commander Lt. Gen. Mohamed Hamdan Dagalo, who is waging a civil war with the military.