GDP growth to rebound, led by consumption. We expect GDP growth to rebound sharply to 6.5% in 2021E (2020E: 2.5%), led by a recovery in consumption and FDI. Early signs of recovery are already evident from rising industrial production and retail sales with mobility close to pre-COVID levels. We see this momentum accelerating in 2021 as the global economy recovers supported by re-openings and positive vaccine developments. Vietnam’s long-term structural growth drivers remain intact with attractive demographics, rising urbanisation, and robust FDI flows. While leadership changes at the next Communist Party Congress in Jan will be closely watched, particularly in relation to the future of the anti-corruption drive, we do not expect any major change in policy direction. 

Attractive valuations and earnings growth. Vietnam market is trading at a 12-month forward P/E of 13.9x (close to its historical average), amongst the lowest regionally despite robust EPS growth (2020-22E CAGR of 19%). Consensus EPS revisions have also turned positive post 3Q with liquidity at an all-time high. While investability issues do remain, particularly for sectors such as financials and consumer retail, it has been less of a problem as 26 out of the top 35 stocks have available foreign room. 

We prefer stocks linked to consumption and FDI. We remain optimistic on strong rebound in 2021 and would recommend positioning in sectors exposed to the recovery theme. Our top picks include VHM, HPG, VPB, MWG, and PNJ. We have also leveraged Credit Suisse HOLT®, our proprietary equity analytical and valuation tool which covers 35 stocks (~80% of market cap). VNM, REE, FPT, SAB, and KBC rank very well in our HOLT scorecard.