This gaining session, along with the VN Index bouncing up after falling to 1,200 points, are factors to believe that the stock price has hit bottom.
Obstacles in short-term
During the session on 16 June, hundreds of stocks turned to gain after the previous series of low plunges due to concerns about the consequences of the FED raising interest rates. However, many investors still chose to stay out of the market to observe rather than buy to catch a new rising wave. Investor caution is completely justified with the stock market still facing many risks, especially from uncertain external factors.
Several securities companies have also mentioned such risks in their analysis reports for June on the stock market. For instance, the Rong Viet Securities Company (VDSC) commented that Vietnam's stock market is still facing a lot of external macro risks especially related to tight monetary policy due to unpredictable and rising global inflation, which is being caused by high food and energy prices. This factor will continue to influence Vietnam's inflation as well. Therefore, in June, it would become a major obstacle in the market uptrend because of increasing and cautious cash flow and difficulty in getting positive news spreading on a large scale.
Similarly, Saigon Securities Inc. (SSI) said that in the short term the stock market still faces many challenges because of factors such as the FED tightening monetary policy, the protracted Russia-Ukraine conflict, and China's strict zero Covid policy which all indirectly affect the Vietnamese stock market. The fact that the transactions of foreign investors is tending towards a high level due to lower transactions from individual investors, may weaken the market recovery momentum if foreign capital flow reverses. These are the factors for SSI to consider when seeing the driving force for the market go up strongly in the current period.
Long-term outlook
Analysts at VNDirect Securities (VND) put forward a positive view of market volatility in June, with the expectation that a stronger recovery rate of the Vietnamese economy in the next few quarters will significantly support the stock market. The next factor to support the stock market comes from the official implementation of an interest rate compensation package of VND 40,000 bn. The interest rate premium package could reduce lending rates by an average of 20 to 40 basis points in 2022. The most important factor is the strong earnings growth prospects of listed companies in 2022 until 2023.
According to analysts, the VN Index recovery was boosted by the global stock market, which has eased pessimism in the last few weeks, and by positive developments in Vietnam. Although the market fell into bear situation, there were still positive signs. For instance, foreign investors bought more than USD 150 mn in May, including about USD 125 mn of foreign capital inflow invested in ETFs, after selling out the net amount of about USD 290 mn in the first quarter.
The impetus for foreign investors to net buy again comes from the perception that Vietnam's stock market is still cheap with a forward P/E of only 11.5x, compared to an expected EPS growth of more than 20% for 2022. Compared to the average forward P/E ratio of 16.2x for developing ASEAN countries in the region, this is an attractive valuation.
Many opportunities
Commenting on the stock market in coming time, Mr. Michael Kokalari, Chief Economist of VinaCapital, said that all the above factors will create a premise for the VN Index to continue to increase this year. This comment received approval from foreign investors that VinaCapital have contacted so far.
According to Mr. Michael Kokalari, the new developments that are currently supporting the sentiment of domestic investors include factors such as the market being aware of the sell-off wave as the margin orders have recently ended; the Government announcing a 2% interest rate support package to support businesses; positive developments in the economy, including a record increase in retail sales in May; and growing awareness that current global economic events will benefit the Vietnamese economy.
Another bright spot seen in May concerning macroeconomics was the industrial production sector. According to data from IHS Markit, Vietnam's Private Mortgage Insurance (PMI) index reached 54.7 points compared to 51.7 points in April. New orders and export orders both increased rapidly despite signs that world demand was constrained by lockdown measures in China. The positivity of the manufacturing sector in Vietnam is quite remarkable compared to the regional and global PMI.
Among the seven ASEAN countries that were surveyed, only Vietnam's manufacturing PMI showed the fasted increase in May. The global manufacturing PMI remained unchanged from the previous month, reaching 52.4 points, although above the 50-point threshold but still near a 20-month low. New global export orders fell at the fastest rate since July 2020, showing that the global trade picture is not very positive currently. In the present scenario, Vietnam's PMI ranks 8th in global PMI ranking, lower than the PMI of developed economies but outperforming the PMI of developing countries.
