Vietnam Stock Market: The Toughest Period Is Over

Vietcombank Securities (VCBS), a unit of the Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) has recently announced macro reports on the market in the second quarter of 2009 as well as prospects of the stock market late this year. According to the reports, initial satisfactory signs have showed that the most difficult period has retreated despite of some short-term fluctuations. Vietnam economy is now trying its utmost to pursue a better prospect and is opening a lot of opportunities for those who can take full advantage of these chances. Regarding opportunities on the stock markets in late 2009, they are clearer for investors who have a long-term vision and strategy.

 

Based on collections, analyses and estimations, VCBS is one of the stock companies giving out satisfactory views on the stock market of Vietnam late this year.

Up to this time, most listed companies have announced their detailed business results. Based on business results for the first half of this year of around 95 percent of listed firms, HSC Securities Company said that the average revenue meets 60.1 percent of the full-year target. This is considered an impressive figure because Vietnamese enterprises often gain peak revenue at the end of the year.

However, it is easy to see that enterprises can reach the high rate in their targets because they set low targets for this year due to the economic recession at the beginning of the year. This also showed that the worst period had stepped backwards and most enterprises had escaped from the worst period. Six-month average net profit of listed companies fulfilled 64.4 percent of the full-year target and rose 38.09 percent compared with the same period last year.

 

According to Saigon Securities Inc. (SSI)’s estimation based on statistic samples of 30 leading shares on both Hochiminh Stock Exchange and Hanoi Stock Exchange, behind the high revenue in the second quarter of 2009 is the secondary factor from the source of revenue of the financial operations. While the average net revenue from business operations dropped around 11.7 percent compared with the same period in 2008, net profit in the period rose up to 40.5 percent. A great number of companies had minus net profit from business operations. According to SSI, expenditures, especially, fixed expenditures are hard to be reduced in line with the speed of the prices. Therefore, it is able to infer a reverse that firms with impressive net profit must depend on their price and market controlling ability or the ability of snatching an opportunity to store up input materials with cheap prices.

 

“The high increase in net profit is mainly thanks to storing goods or liquidating assets in the good circumstance of the stock market. It is clear that when the growth rate of up to 116.4 percent of VN-Index between March and June, 2009 is hard to repeat again, the attention of the entire market will focus on major business field with the ability of maintaining or improving the growth rate of revenue or of reducing expenditures to raise profit,” SSI estimated.

 

Additionally, according to Viet Dragon Securities Corporation (VDSC), total net profit of 276 listed firms rose 15.9 percent, lower than the increase speed of the average number of circulated shares (22.4 percent), causing the six-month earning per share (EPS) down 5.4 percent compared with the same period previous year. Major reason is enterprises must incur a liability from the first quarter. EPS in the second quarter rose up to 30.9 percent compared with the same period last year and up 63.5 percent against the previous quarter, showing that a considerable and strong improvement.

 

According to FPT Securities (FPTS), at the end of the second quarter and the beginning of the third quarter, the market will have a short-term reduction trend with VN-Index fluctuating between 410 and 450 points. With that satisfactory prospect of economy, VN-Index is forecast to consolidate its position in July and August, before having a sudden growth in September. VN-Index is likely to fluctuate between 440 and 560 points. The prospect of 310-410 points only happens if economy has many liabilities.

 

Based on statistics on the growth rate of the sector upon the VCBS shares’ price, it is said that financial and banking shares will top in the recovery as average price of shares of the sector had an increase of between 83.53 percent and 78.41 percent. Shares of the real estate sector, commodity production sector, chemical sector, and entertainment sector with the price increase by over 50 percent in the second quarter also rank in the list of shares having a strong increase in price.

 

VCBS also estimated that the sector having a weak recovery in the second quarter includes insurance and electricity due to having a considerable recovery in the previous quarter as well as being the sector receiving little attention from investors after the market recovered from the economic crisis. 

 

Investors are putting much expect on shares of the technology sector as they have current average price-earnings ratio (P/E) of 20.04, nearly doubling the figure of the entire market. Despite of topping in the recent price increase, the average P/E of financial and banking shares is at 14.21. Some shares of the sector are currently appraised at the low level compared with the common rate. 

 

Shares of oil and gas and telecommunications sectors now have the lowest average rate of P/E. Basically; most of shares of the sectors have a low increase in the second quarter.

In the remaining six months of 2009, according to VCBS, investors may seek opportunities in shares of the financial and banking, real estate, building material production, transport, and rubber sectors which are benefiting from the government’s demand stimulus packages as well as from the recovery of economy.

 

VCBS also estimated that satisfactory signs and the market entire view are brighter and brighter. Not only benefiting from the recovery of the general macro economy, the stock market – barometer of the economy will also benefit from the recovery of the economy, especially, from sectors which directly vary upon the economic cycle such as real estate, materials, and transport.