Rotating into defensive sectors is an obvious response into a skittish market. But the Vietnamese market is a strange animal in which the boundaries between supposed “cyclical” and “defensive” sectors are blurred. A classic example is the divergence so far this year between real estate and construction / construction materials which are generally expected to move in tandem. Property has been among the best performing sectors this year while construction stocks have languished at the bottom of the sector performance league table.
So, we think a “bottoms-up” approach to defensive stock selection is more sensible in a Vietnamese context. We developed our own “defensive” scoring tool which rates stocks on a whole range of attributes such as dividend yield, historical earnings CAGR (to ensure that valuation discounts were not due to poor earnings growth), discount/premium to sector average P/E and P/B as well as discount/premium to the stock’s own historical P/E and P/B. We also layer on ADTV to measure illiquidity risk, stock Beta to capture risk as measured by volatility and, finally, leverage to account for solvency risk. We aggregated all these individual attribute scores into an overall score of “defensiveness” (note we did not factor in governance risk as this is virtually impossible to quantify).
What was also striking during this scoring exercise was that, despite a low and falling market-wide dividend yield, there are a boatload of stocks that pay very handsome dividend yields. Here are the results of our analysis:
While 45.6% of stocks across the listed universe do not pay a dime in dividend, 489 stocks carry more than a 7% dividend yield and 303 stocks carry more than a 10% dividend yield.