VinFast is a Vietnamese success story. It is the Southeast Asian country’s first car brand to expand into global markets. For a brief period, following its mid-August listing on the Nasdaq, VinFast was the third most valuable car maker in the world.
Key themes for the week include:
- Electric vehicles in vogue
- United States (US) jobs market cools
- Worst month for S&P 500 since February
- Output cuts raise oil forecasts
- Weakness in Mexican peso persists
Vietnamese electric vehicle (EV) maker VinFast recently gained popularity following its mid-August initial public offering (IPO) on the US’s Nasdaq Stock Market. The listing was done through a Special Purpose Acquisition Company (SPAC). A SPAC is a company (in this case Black Spade Acquisition Co.) that exists primarily to merge or acquire another company, allowing the latter a faster public listing. On the day of the listing, VinFast’s IPO price launched at $22/share, however, by the close of the trading day, the share price had climbed by 70%. Only once VinFast’s market capitalisation touched a meteoric $215 billion, did the rally for the company’s shares abate. This briefly positioned it as the third most valuable carmaker in the world, surpassed only by industry giants Tesla and Toyota. To put this into perspective, the combined valuations of Ford, General Motors, and Honda, at the time, came up short of $70 billion, less than a third of the valuation of VinFast.
The enormous speculative valuation is in contrast with the six-year-old VinFast’s challenging start. Since 2021 the company has accumulated total losses of $4 billion, in addition to its ambitious entry into the competitive US automotive market through a $4 billion factory under construction in North Carolina. This means that positive returns are a long-term expectation for the company. If all goes well, however, the new plant is expected to begin production in 2025 and manufacture 150,000 EVs per annum which is equivalent to 15% of the total US EV and plug-in hybrid market in 2022. To date only 19,000 VinFast EVs have been sold globally, and of these only a few thousand have been exported from their Vietnamese production facility to the US.
At $46,000, VinFast’s 5-seater sedan competes comfortably with the popular Tesla Model Y, which is priced at $47,000. Its range of vehicles includes a crossover carrying a 42kWh (kilowatt hour) battery and an SUV (sport utility vehicle) sporting a 123kWh powertrain, offering ranges of 300km and 470km respectively between charges. To achieve the required brand recognition, VinFast must contend with the EV aspirations of almost all car manufacturers retailing in the world’s largest economy. Even Apple is rumoured to be developing an electric car.
Most of VinFast’s equity is owned by parent company Vingroup which was founded by Vietnam’s first billionaire Pham Nhat Vuong. The move to invest in a complex US greenfield project, where a project is built from scratch, marks an important milestone for Vietnam’s global profile as an economic powerhouse.
DATA IN A NUTSHELL
In the US, the Department of Labor reported a drop in job openings from 9.2 million in June to 8.8 million at the end of July, compared to 11.4 million a year ago. While openings are still high at 1.5 for each person counted as unemployed, up from the average of 1.2 per person in 2019 – which was considered a good year for the US job market – it still indicates that the US job market is cooling.
The quits rate – number of people leaving their jobs as a share of overall employment – also fell to 2.3%, which was its lowest level since January 2021 and matching the 2019 average. The decline in the quits rate might be a better reading on job market tightness than openings, as when people quit their job, it is usually because they have found a better one elsewhere, often at higher pay.
US consumer spending rose 0.8% in July, up from a 0.6% rise in June, driven by higher spending on groceries, recreational goods, vehicles and on services such as dining out, financial services and insurance. Adjusted for inflation, consumer spending rose 0.2% in July. The personal-consumption expenditures index, which is the US Federal Reserve’s (Fed’s) preferred measure of consumer prices, rose 3.3% in July from a year earlier versus a 3% gain in June. Core prices, which exclude the volatile food and energy categories, increased 4.2% in July over the year. The data suggests that Americans are continuing to spend despite the Fed’s efforts to reduce inflation by slowing the economy.
South Africa reported a record budget deficit of R143.8 billion on Wednesday as the rand fell and yields on local-currency bonds lifted. The deficit was the largest since 2004 and came in ahead of economist forecasts, this was in sharp contrast to the surplus of R36.7 billion in June. Yields rose across the board, with rates on longer-dated securities rising the most. Bonds maturing in 2048 rose nine basis points to 12.37% while the 2026 notes were up three basis points to 8.89%.
DOWN MONTH FOR S&P 500
This week saw stocks reacting positively as bond yields retreated. Economic data has fueled speculation that the Fed will be getting closer to ending its tightening crusade. Mega-cap stocks like computer chip manufacturer, Nvidia, and electric car manufacturer, Tesla, boosted the Nasdaq by 4% for the week. The S&P 500 topped 4,500 as data showed the US economy grew 2.1%, a markdown from previous estimates. However, the S&P500 is down 1.5% for August, its worst month since February, while the Nasdaq is on track for the largest monthly decline of 2023. US retailer, Dollar General, plunged 16% on Thursday on the back of a weak earnings report and soft guidance.
The European Dax and Stoxx 600 and UK’s FTSE 100 shares followed a positive trend for the week and were all up around 2%. In terms of earnings results, it has been a relatively quiet week, but HP Inc. saw its share price sink after reducing its profit outlook and gave comments on the muted demand for PC’s. In Europe, UBS advanced 7% after the bank posted its biggest ever quarterly profit after the takeover of Credit Suisse.
On the local markets, the JSE All Share increased 2% for the week, driven by miners, BHP and Anglo American and broad-line food services group, Bid Corp, to mention a few. This was a relatively busy earnings week locally; on the positive side we saw Bid Corp release spectacular numbers. Revenue growth jumped 33.4% for the year, driving headline earnings per share up 35.4%. These results propelled Bid Corp to briefly hit an all-time high share price of R433/share. On the negative news side, pharmaceutical company, Aspen’s stock price declined 8% after a weaker set of results. Even the news that Aspen has secured three new distribution contracts could not lift investor confidence, given the company’s weak first-half guidance.
OIL FORECASTS RAISED
Analysts have upgraded their 2023 oil price forecasts for the first time this quarter. This is largely due to expectations that the expanded Organization of the Petroleum Exporting Countries (OPEC+), will cut output, which is likely to keep a lid on oil supply. A Reuters poll revealed that Brent Crude is expected to average $82.45/barrel in 2023, up from a July consensus of $81.95/barrel.
Most analysts are expecting Saudi Arabia to continue their voluntary one million barrel-per-day supply cut, contributing to a potential average Brent Crude price of $85.65/barrel in the fourth quarter. They are anticipating a significant market deficit in the latter half of 2023 and increased pressure on oil demand as governments aim to rebuild strategic petroleum reserves. There are, however, some market participants who are cautioning that China’s contribution to oil demand growth may be overestimated due to its economic challenges and well-stocked domestic oil storage.
Oil was further boosted by a large drop in US crude inventories as the Energy Information Administration reported that US stockpiles shrank by 10.6 million barrels last week, as refiners ramped up production before the Labour Day weekend, which is usually the peak in US summer demand. The crude inventories stood at just under 423 million barrels, their lowest level since December 2022.
Brent Crude was trading at $86.80/barrel on Thursday afternoon, having gained around 20% since the end of June.
The US dollar gained strength on Thursday following mixed economic data, while the euro weakened due to cautious comments by a leading European Central Bank (ECB) member. The US Dollar Index gained 0.54% to trade at 103.66, the index was however down from last Friday’s three-month high of 104.11 due to economic data which came out earlier in the week casting doubts on future rate hikes by the Fed.
The Mexican peso briefly became the worst performing currency in the world on Thursday after the country’s central bank, Banco de Mexico, reduced its hedging program and will only roll 50% of the positions maturing in September. The Mexican peso lost more than 2% shortly after the announcement was made but then settled to around negative 0.9% to trade at Mex$16.90/$.
The rand is trading at R18.79 /$, R20.39/€ and R23.82/£.
Sources: Bloomberg, CNBC, Reuters.