Looking back at the period from 2018-2019, the Fed also continuously raised rates to cool down the labor market. When Covid happened in 2020, as the economy suffered much more than its current state, the Fed reversed their policy to support companies and the workers. The substantial supply of liquidity during Covid helped the economy recover post Covid. However, its side effects again caused the heating up of the labor market. Coupled with the disruption of the supply chain and the war between Russia and Ukraine, these 3 factors led to severe inflation globally. We believe the economy will be able to recover from these issues. Compared to the issue of Covid in 2020, these 3 factors are less dangerous and there are clear solutions. The global economy will suffer in the short term, but not for too long. The Vietnam economy will face pressure from inflation and exchange rates. However, a silver lining for Vietnam is the manufacturing shift out of China, as well as the strong promotions for foreign investments by the Government.

Finally, recent fall in liquidity of the Vietnam stock market led us to a hypothesis of a decline in capital flow from new investors (locally called “F0”). This capital flow during the Covid period was a strong push for the Vietnam stock market to move from a very cheap level of 10x PE to an expensive level of 20x PE. This phenomenon was not exclusive to Vietnam but also at many other markets. Money was made too easily and people got rich quickly from crypto, meme stocks, startups… Many asset bubbles had been blown up in the recent cheap money era. When deleveraging happens, rates are raised, cheap capital dried up and these asset bubbles deflated. The knock-on effects of these bubbles are most difficult to predict out of all factors mentioned above. This uncertainty is the largest dark cloud weighing on the sentiment of global investors.

To predict the macro environment and the stock market is always difficult and with low precision. However, to invest successfully, we do not need to think about whether the market is right or wrong. The market shall always function in its own ways. Our job is to deal with the market like a business partner, to take advantage of the opportunities this partner presents and to decline the unreasonable offers. Overall, our view of the economic growth of Vietnam in the next 5 years is unchanged. The macro foundation of Vietnam is strong and our invested companies will continue to grow. Despite short term difficulties, large global corporations continue to shift their manufacturing activities to Vietnam. The VN-Index at the 1,200 level, PE forward 2022 around 12x, is at one of the most attractive levels in its history, showing a relatively low risk level. AP Alpha has a feeling that the market is giving us a similar opportunity as it did when Covid happened in 2020. The recovery, this time, will not be V-shaped after a few months as in 2020. However, this is one of the troughs in a 5-year time horizon.