Abundant liquidity
Liquidity was showing a decline in the last trading sessions in June, but the market still witnessed a strong cash flow in the stock market in the second quarter. While the average trading value at HOSE reached nearly VND 6,300 bn per session, liquidity was equivalent to the second quarter of 2018, only slightly less than in the boom period in the first quarter of 2018.
In June, stock market liquidity recorded a strong growth, with total trading volume of around 9.55 bn in shares and total trading value of about VND 146,660 bn. This was a 59.62% increase in volume and 31.32% in value. Also in the same month, because of a VND 15,000 bn Vinhomes (VHM) deal with a foreign investment group, there was a record in total trading value including matching orders, and a record high in a deal. This sale took place in the last few days of June, due to concerns about a second resurgence of the Covid-19 pandemic. In case of no deal in VHM case, the foreign investor transaction will follow the index rules.
The bright spot currently is that foreign investors still continue to put money into new domestic fund certificates (FCs). For example, FUEVFVND and FUESSVFL ETF issued 61 new FCs and 22 million FCs, while E1VFVN30 ETF fund had to buy 46 million FCs. In this context, foreign ETFs did not record much activity in June. The case of FCs VNM ETF is a rare bright spot from foreign ETFs when issuing 500,000 FCs in June.
Increase in F0 investors
According to data from the Vietnam Securities Depository (VSD), domestic investors opened 35,046 new securities accounts in June, which included 34,965 individual accounts and 81 organizational accounts. This is the 4th consecutive month that the market recorded nearly 30,000 new accounts. In the last four months, local investors have opened 137,753 new securities accounts, equivalent to 73% of the number of new securities accounts opened in 2019. Thus, by the end of June, the number of securities accounts on the stock market reached about 2.54 million.
In an article "Be careful to revive micro stocks," Saigon Investment pointed out the psychology of F0 investors in "bottom fishing", after the market price kept falling due to the Covid-19 pandemic. This is the time when the investor tends to choose stocks with low prices, as the low prices are motivation to buy. The participation of F0 investors played a relatively important role in helping the VN Index recover strongly from the 650 points at the end of March to the current level. In fact, the proportion of transactions of domestic individual investors has been increasing in recent months.
According to the statistics of Bao Viet Securities Corporation (BVSC), the proportion is about 76.4% and 78.6% in May and June, respectively, from about 72% at the beginning of the year. After the boom, F0 investors were more cautious in the last days of June, resulting in liquidity of only VND 3,000 bn. In terms of the cash flow structure, construction and construction material groups still have the ability to attract capital, accounting for 26.7% of the total market, followed by banking at 18.6%, food at 9%, and real estate at 7.5%.
Abundant cash flow
According to the KIS Vietnam Securities Company (KIS), in the second half of this year, although the VN Index valuation will no longer be cheap despite abundant liquidity, it will revalue the entire market. Low savings rates will lead to higher P/E valuation of stocks, as these will be alternative investment tools. This was clearly seen in the period 2009 until 2015.
Specifically, in the period 2009 to 2011, one to six-month deposit rates doubled, from 7% to 14% and P/E of VN Index decreased from 20 times to 7 times. In the 2012 to 2015 period, interest rates were cut by nearly two thirds, from 14% to 5.4% and P/E increased from 10 times to 15 times. In the period 2016 to 2018, despite saving interest rates remaining unchanged, cash flow from South Korea helped P/E to peak 21.5 times in March 2018. Currently, as savings interest rates are cut from 5.5% to 4.25% since the end of 2019, P/E may rise higher from the 2019 average by 16.4 times.
Sharing this same opinion, analysts of Viet Dragon Securities Corporation (VDSC), said that the difference in growth of money and credit supply maintained a positive level for the 10th consecutive month and is at a high level since 2016. Interbank interest rate for term of one month is still low, partly showing that cash flow in the system continues to be in abundance, in at least the next month. Meanwhile, the Open Market Operations (OMO) has almost no transactions between commercial banks and the State Bank of Vietnam.
The combination of the above factors shows that the capital demand for economic activities is likely to remain low in the next coming months. On the one hand, when the continuous reduction of commercial interest rates by banks helps reduce capital costs, it also stimulates cash flow to shift to investment channels such as securities and real estate, the two most popular investment channels in Vietnam.
Although Vietnam's economy is less vulnerable now than it was during the 2008 global financial crisis, the gap between dividend yields (P/E reversals) and saving rates is at a record high compared to negative figures from 2008 to 2012. In the last few years, re-valuation has been the main factor driving the VN Index in both up and down markets, hence it is highly likely that the VN Index may end this year at 900 to 1,000 points, assuming that EPS is down 9% and the VN Index is trading at a P/E valuation that is 16.4 times higher than the 2019 average.
