Vietnam stock market likely to face valuation discounts during Trump’s presidency: analysts

Emerging markets, including Vietnam, may face valuation discounts during President-elect Donald Trump’s second term, say analysts at Vietnam-focused fund management company Dragon Capital.

As a result, expected returns in the Vietnamese stock market could lag behind corporate earnings growth, they noted in a report.

The projected price to earning (P/E) ratio for the Vietnamese stock market in 2024 is 11.5x, which is significantly below the five-year average of 17.2x. This indicates that further P/E declines may be limited given the positive sentiment among domestic investors.

During Trump’s first presidency, listed companies on the Vietnamese stock market saw an impressive net profit growth of up to 19.1%, Dragon Capital data shows.

Despite Trump’s unpredictable policies and statements which heightened market volatility, the VN-Index achieved a compound annual growth rate of around 15% during this period, slightly lower than corporate earnings growth.

Looking ahead to Trump’s next term, the leading fund management firm anticipates increased volatility in the stock market in the short term.

Export-oriented companies, which could be directly impacted by President-elect Trump’s potential policies, make up a small portion of the VN-Index, Vietnam’s benchmark.

Consequently, risks from this group are unlikely to have a significant effect on the overall market. Domestic investor sentiment remains positive, with many expressing optimism about Trump’s election.

In the mid-term, market volatility may persist, with two potential scenarios, they noted.

In the case of trade protection, trade activities could slow down, putting pressure on corporate earnings. Consequently, Vietnam’s corporate earnings growth might decline from the current 16-18% to 5-9%, which could have a broader impact on economic growth.

In a more optimistic scenario, several countries or products would face new tariffs. This could create opportunities for Vietnam with possible tariff advantages over China, they argued.

Increased trade barriers with China, currently responsible for 32% of global manufacturing output, could enable Vietnam to expand its market share in manufacturing and exports, similar to trends observed during the previous Trump administration.

Such a shift might encourage greater localization among domestic manufacturers, strengthening the economy and, in turn, supporting Vietnam’s stock market, the Dragon Capital analysts added.