Defensive Stocks: A Short-Term Safe Haven Amid the U.S. Tariff "Storm"

On April 3, 2025, the U.S. President announced retaliatory tariffs of up to 46% on Vietnamese exports to the United States. This news triggered a sharp and widespread negative reaction in the Vietnamese stock market, with a series of strong declines across multiple sessions. Notably, even fundamentally strong sectors were not spared from the sell-off, reflecting a widespread pessimism among investors. Amidst this market panic, the key question arises: "Which sectors are less affected during this turbulent period?". This article delves into defensive sectors – potential short-term safe havens for investors.

I. What Are Defensive Stocks?

Defensive stocks are shares of companies that provide consistent dividends and stable earnings regardless of overall market conditions – even in times of uncertainty.

This stability comes from the continuous demand for the company’s products or services, allowing these stocks to remain resilient throughout different phases of the business cycle.

During periods when markets are dominated by negative news, defensive sectors often serve as a refuge for capital as risk aversion increases.

II. Characteristics and Metrics of Defensive Stocks

- Essential, stable demand and low sensitivity to economic cycles: Whether GDP rises or falls, people still need to use these goods and services. Therefore, demand is not easily postponed or replaced.

- Diversified revenue sources with high domestic consumption: These companies typically serve a wide range of domestic customers and are less reliant on exports or large foreign orders. As a result, they are less exposed to tariffs, geopolitical tensions, or global supply chain disruptions.

- State involvement or regulation: Many operate in sectors with high entry barriers or under strong government oversight, resulting in less competition and greater stability.

- Regular cash dividends: Due to the consistent cash flows in essential industries, these companies often provide steady dividends, carry low debt levels, and operate sustainably.

- Low beta: These stocks are generally less volatile and less sensitive to broader market fluctuations, with beta values typically under 1.

III. Pros and Cons of Defensive Stocks

Pros	Cons
- Stable dividends: Defensive stocks offer reliable dividends, especially during tough economic times. - Better performance in downturns: Defensive stocks tend to outperform during economic slowdowns as they are less negatively impacted by market shocks. - Low risk. - Reduced volatility concerns: They help investors maintain portfolio stability and reduce anxiety during market fluctuations.	- Slow growth: As they serve essential needs, these sectors typically see stable but modest revenue growth, making it harder for stock prices to surge in the short term. - Underperform in bull markets: These stocks don’t benefit as much during strong market rallies compared to more growth-oriented sectors.

IV. Common Defensive Sectors

1. Pharmaceuticals

- Pharmaceuticals are essential in all economies, providing medical treatment and healthcare. This sector remains stable regardless of peace or conflict.

- Average dividend yield: 20-30%

- Since the retaliatory tariff announcement, the market has experienced significant declines. While pharmaceutical stocks also dropped due to general market sentiment, they were less affected than the broader VN-Index. As of April 9, the VN-Index had fallen 17.02%, while the pharmaceutical sector index dropped only 12.21%.

2. Clean Water

- This is a steadily growing sector, driven by increasing water consumption tied to urbanization and population growth. Most companies in this sector also hold local monopolies.

- Average dividend yield: 12-15%

- Compared to the sharp decline of the VN-Index, the water sector showed resilience, with a relatively modest drop of just 4.4%.

3. Electricity

- The power sector remains stable as electricity is a basic need and its demand grows in line with GDP. Additionally, revenue is largely generated from long-term contracts with EVN (Vietnam Electricity), ensuring steady cash flows and minimal risk.

- Average dividend yield: 5-10%

- Like other defensive sectors, electricity stocks were affected but less severely than the VN-Index, with the sector down just 10.78%.

4. FMCG

- Although slightly less defensive than the sectors above, FMCG is still considered a defensive sector. Regardless of economic conditions, people continue to buy food, milk, and personal care products. They may cut spending on travel, technology, or fashion, but not on daily necessities. Moreover, companies in this sector often have strong brands, widespread distribution networks, and consistent cash flows.

- Average dividend yield: 5-6%

In conclusion, amid the external pressures facing Vietnam’s stock market, particularly the newly imposed U.S. tariffs, defensive sectors are emerging as rational shelters for investor capital. Notable examples like clean water, electricity, and pharmaceuticals have shown greater resilience and lower volatility compared to the broader market.