Finance & Banking
Last updated: Friday, February 17, 2017
Short-term Prospects of Vietnam Stock MarketPosted: Tuesday, November 22, 2016
By the end of October when most companies released third-quarter earnings reports, the Vietnamese stock market did not experience an impressive rally as expected by many investors. Worse, the market liquidity even dropped sharply. Nevertheless, the market is expected to see a substantial uptrend from now till the end of the year.
Listed companies started to release third-quarter financial statements by mid-October. From the market trend by the end of September (VN-Index was on the uptrend), most analysts believed that the market would stage a strong rally in October when corporate earnings were reported to the public. However, the market performance actually did not match expectations. Ms Doan Thi Thanh Truc, Chief Analyst at Viet Dragon Securities Company (VDSC), cited three reasons for the market slump in October.
Firstly, a long rally was recorded last year, longest ever for many years. In 2016, the uptrend of VN-Index started from January 22 till early October. Meanwhile, in previous years, the market only created short waves. For example, there were three waves in 2015. In previous years, there were only two rallying waves which were not as long as those in 2016.
Secondly, among 165 businesses listed on the Hochiminh Stock Exchange (HOSE) with third-quarter earnings reports announced, the earnings before interest and taxes (EBIT) were strongly varied. Only 70 companies had higher EBIT growth than the same period of last year, averaging 33.4 per cent. Up to 95 companies reported an EBIT decline with an average drop of 43.4 per cent. Thus, in combination, EBIT sank 21.3 per cent from a year earlier. The strong performance differentiation did not come as a surprise.
Thirdly, positive information of listed companies was usually known to many investors before it was made public. This information affected stock prices by around three weeks before the announcement date but the strongest performance was seen before 8-13 days, Truc said.
This coincided with the uptrend of VN-Index in late September and early October.
The current support of VN-Index is 670 points, she said. Based on the largest stocks by market capitalisation, compared with the peaks recorded on September 30 and October 21, the drop to date is marginal. Price changes of mid-cap and small-cap stocks have insignificant impacts on the index. This decline is not attractive enough to draw the attention of investors.
In fact, the resistance of 670 points is not strong because of different performance of large-cap stocks. For that reason, in case the 670-point threshold is maintained, the VN-Index will likely fluctuate in a narrow range of 680-690 points. In the event that the resistance is broken, the gauge may slide to the next support of 650 points.
Mr Barry Weisblatt, Research and Analysis Director at Viet Capital Securities Company (VCSC), said, the liquidity of banking stocks has improved on rate cuts. Many blue-chip banks have advanced over 50 per cent in the year to date. The price-to-earnings ratio or P/E ratio of the market is now approximately 16. As this is the highest in history, many investors decided to take margins. But cash flow continued to be pumped into the market because the current P/E ratio of Vietnam remains relatively low in comparison with regional markets, he said.
Ms Truc recommended that investors should maintain moderate portfolios for the time being. Due to stock diversification, they may consider expanding their portfolios. In addition to much-interested stocks like construction, retailing and consumer goods, they may take into consideration stocks with good fundamentals and business performances like PNJ, HPG, VFG, FPT and CTD.