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Dinh Vu

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Last updated: Monday, May 21, 2018


Sentimental Barriers to Securities Investors

Posted: Friday, May 05, 2017

The May stock market is considered a downtime as investors historically sell more than buy in this period. This imperceptibly obsesses many investors at the present time.

Maintaining growth momentum
The stock market has made great leaps since December 2016 when VN-Index climbed 12.6 per cent from 650 points to 730 points on April 11, becoming one of the best performers. According to statistics compiled by the website indexq.org, VN-Index was the third best performer in the world in the past year after Argentina and Luxembourg.

The first-quarter performance was impressed by penny stocks on strong cash flows such as FLC, HAG, LDG and HNG. In February, cash flows were robustly channelled into penny stocks, helping these stocks to jump high. According to data from stock exchanges, this was the first time in two years there was such a huge cash flow into this group of stocks.

This caused the market to create interesting points, driven by basic stocks. According to statistics, basic stocks posted a relatively low growth, mostly less than 10 per cent, which was much lower than the growth of midcap and penny stocks.

According to the report on the second quarter stock market released by Vietnam Investment Securities Company (IVS), the market will experience a necessary correction phase. In addition to bringing the average P/E of the market to the par with other countries in the region, the overheating growth of many stocks will also result in high margin trading. Hence, this correction will not only affect the index value, but also bring cash flows back to core values.

The lesson in 2016 showed that investors who held basic stocks long enough were clever. Many stocks saw their values doubling or trebling, for example RAL, VNM and CAV because of the most important factor - corporate performance.

Mr, Nguyen Huu Binh, chief analyst at IVS, said, in May, the stock market is expected to stage continued growth although VN-Index may face corrections. Last year, the gauge also showed impressive growth in May, rising by 4 per cent from 595 points.

He affirmed that the market still has many supporting factors, especially following three factors, to maintain the growth pace of the stock market.

Firstly, the M2 money supply will be kept at a high rate. As of February 20, 2017, the M2 growth exceeded credit growth of about VND65 trillion. Meanwhile, credit grew 2.81 per cent year on year in the first quarter of 2017, the highest in six years. This made interest rates to cool down, after the first months with a sharp rise.

Secondly, foreign investors are showing signs of returning to the Vietnamese market as recent data proved net foreign buying. In the year to date, they have bought net VND5,300 billion on the stock market.

Thirdly, strong cash flows are proving that the stock market is an effective investment channel, in place of real estate investment, which has increased strongly in the last two years.

Sentimental barriers
The market is showing optimistic signals but investors need to stay cautious with this transition period, according to Binh. Accordingly, undervalued basic stocks will draw cash flows while speculative stocks which have advanced strongly without basing on underlying factors will face downturn pressures.

However, the stock market may see unfavourable information in May. In the first quarter, commercial banks reported deposit growth at 2.43 per cent, lower than credit growth, resulting in interest-rising pressures while inflation will continued to look up, forcing the government to tighten money supply.

Besides, world economic and political developments will also have certain impacts on the local bourse, including French presidential election in early May, and the British exit from the European Union, and tensions on the Korean Peninsula.

Luong Tuan

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