Vietnam Stock Market: Q4 Growth Opportunities

10:17:39 AM | 21/10/2019

Boosted by a stable domestic macroeconomic outlook, many industries are forecast to witness positive business performance for the whole year and, with some emerging factors, the stock market is expected to be more optimistic in the last quarter of the year.

Optimistic market expectations

According to the third-quarter stock market report by the BIDV Securities Joint Stock Company (BSC), the price-to-earnings ratio (P/E) of the VN-Index at the end of September rose 1.53% from the previous month, 5.37% from the previous quarter and 13.03% from the end of last year to 17 points. The P/E ratio of the HNX-Index also climbed to 7.54 points, 2.75% higher than the previous month, 1.33% higher than the previous quarter but down 13.38% from the end of last year. Compared to August, the P/E ratios of the VN-Index and the HNX-Index stood at No. 10 and No. 20 in Asia, respectively.

Mr. Dinh Quang Hinh, Head of Market Strategy Team, Research Department, VNDIRECT Securities Corporation (VNDS), said the VN-Index rose nearly 5% in the third quarter and approximately 12% from the beginning of the year, topping Southeast Asia by growth rate. The market performance was boosted by high economic growth (6.98% in the first nine months of 2019) despite signs of declining global growth.

Given this macro landscape and stock market performance, the VN-Index is expected to surpass 1,000 points in the fourth quarter.

According to the General Department of Customs, Vietnam's merchandise trade balance had a surplus of US$189 million in the first half of September, bringing the total trade surplus to US$5.57 billion in the year to September 15. In addition, the stable USD/VND exchange rate amid volatile foreign exchange markets increased the confidence of foreign investors and stabilized the macro environment for investors, importers and exporters.

As the third quarter elapsed, companies started to release their quarterly business results. Although this is an unaudited financial reporting, it is very important because it can illustrate the picture of full-year business performance and it can considerably affect stock price movements and the stock market as a whole in the last months of the year.

In 2019, banking, real estate, shipping, technology, and garment and textile sectors are still expected to have the most optimistic business outcome. They are beneficiaries of or unaffected by the U.S.-China trade war. Companies in these industries are hoped to have stable or rising stock prices in the fourth quarter of 2019.

Another positive development in the stock market is VietFund Management (VFM) raised funds for two exchange-traded funds: VN - Diamond Index (Vietnam - FOL Index) and VN - Capped Financial Index (N - Finance). This move will help attract foreign cash flows into the stock market when ownership rooms of their favorite stocks have been long filled. This development is believed to affect stocks with full foreign room and financial - banking stocks in the coming time.

However, the year-end stock market may still have some “dark areas”. Typically, cash flows are not so abundant, evidenced by a 30% year on year drop in liquidity in the first nine months. A part of cash flows was withdrawn from the market and poured into other investment channels such as savings and corporate bonds. Besides, foreign investors started net selling from the beginning of August until now, although they still bought net over VND10,800 billion (US$470 million) from January to September.

Cash flows return to the market

In September 2019, the U.S. Federal Reserve (Fed) reduced interest rates by 0.25% with the message that it may continue to lower interest rates in the near future. Not only the Fed, many other central banks have also applied economic stimulus programs with policies to lower interest rates, including the State Bank of Vietnam. This promises that the economy is likely to be stimulated, at least from now until the end of 2019.

VNDIRECT Securities Corporation stated that the Fed’s rate cut will have a positive impact on emerging and frontier stock markets, including Vietnam. Meanwhile, stronger USD pressures will be marginalized and cash flows be stimulated to return to these markets. The Fed may do 1-2 more rate cuts from now to the end of the year, including this time. For that reason, foreign capital flows will be stimulated back to Vietnam's stock market from the start of the fourth quarter of 2019. This factor will help the market recover in the last months of the year. In addition, falling USD interest rates will also help ease concerns from international capital outflows from Vietnam's stock market.

Furthermore, according to securities companies, the macroeconomic environment has been adjusted to the right trajectory - economic growth is maintained, and not only stocks that go in tune with economic cycles such as banking, finance, technology and telecommunications, but also fundamental industries such as insurance, oil and gas and industry, will also benefit from better economic prospects.

According to Mr. Dinh Quang Hinh, in the last months of the year, sectors that benefit from high economic growth momentum such as finance - banking, real estate, consumption and retail will catch cash flows. Other sectors such as information technology, telecommunications and logistics can also maintain positive growth momentum as they benefit from Government-backed development policies. “Investors can take advantage of market corrections in the first half of the fourth quarter to increase stock exposures ahead of optimistic fourth-quarter business results of listed companies and wait for the return of large cash flows to the market,” he recommended.

By evaluating domestic and foreign impact factors, BSC predicts that the VN - Index may move in the range of 940 - 1,050 points, with the focus placed on the range of 980 points. “If the VN-Index cannot recover to 1,015 - 1,025 points in October, it will accumulate around 980 points in November and recover gradually in December,” BSC forecast.

Luong Tuan