Resurgence of Individual Investors in the Stock Market
Towards the end of February, the stock market witnessed a remarkable upward trend for the fourth consecutive month, surpassing analysts' expectations. The surge was primarily driven by banking stocks, benefiting from positive outlooks following two quarters of decline. Notably, the pre-tax profits of 27 listed banks in the fourth quarter of 2023 experienced a substantial 26% increase, providing a catalyst for the industry's growth in 2023. This growth was attributed to effective cost control measures and improvements in asset quality.
Despite the net interest margin (NIM) remaining unchanged, banks express optimism in enhancing this index, aiming to contribute to the continued growth of pre-tax profits in the forthcoming quarters.
According to recent statistics, the VN Index has surged by an impressive 21.7% since its first upward trajectory in November 2023, marking the seventh-highest level among nine strong increase sequences recorded since 2009. Notably, liquidity in the HoSE (Ho Chi Minh Stock Exchange) has experienced a substantial boost, with the average transaction value in February surpassing VND 19,000 billion, reflecting a notable 28.3% increase compared to the average over the past 12 months.
The standout feature in this liquidity surge is the active involvement of individual investors, who exhibited a robust net buying trend of VND 6,495 billion in February alone. The cumulative 12-month net buying figure for individual investors has reached a record high of VND 34,867 billion.
Nhat Viet Securities Company (VFS) attributes a significant portion of these new cash inflows to savings transitioning into the stock market. Investors are drawn by the expectation of higher returns compared to traditional banking options, balancing the quest for profitability with a commitment to legal safety and high liquidity. Moreover, the prevailing low-interest-rate environment has influenced investors to adopt a more opportunistic stance, leading them to make relatively "easy" choices in speculative and investment activities.
Anticipation for Foreign Capital Inflow
The recent surge in the VN Index over the past four months can largely be attributed to the influx of affordable capital from domestic investors. However, in contrast to the domestic cash flow, foreign investors have abruptly shifted to a notable net selling position in February, amounting to VND 2,769 billion. The primary reason for foreign investors becoming net sellers is the market's attractiveness at the current price levels, prompting them to capitalize on profits.
By the end of February, the 12-month trailing P/E (Price/Earnings) ratio for the VN Index exceeded 14x. Historical observations by VDSC indicate that this valuation range becomes a preferred area for foreign investors to engage in net selling, particularly in the absence of significant market catalysts. Consequently, VDSC does not rule out the possibility that this selling pressure may persist in the short term. Investors are keenly awaiting the dynamics of foreign capital flow in the coming months, recognizing its potential impact on market movements.
Despite the current trend of foreign investors engaging in net selling activities, VDSC remains optimistic about a positive reversal in their net trading position in the medium and long term. The outlook is contingent on major central banks initiating interest rate cuts, and Vietnam enhancing its criteria for market upgrades.
Analysts posit that the revenue generated by listed companies in Southeast Asia is predominantly derived from their domestic markets, minimizing the potential impact of China's economic downturn. As a result, Southeast Asian stock markets, including Vietnam, emerge as favorable destinations for foreign capital inflows due to their enticing profit prospects and attractive valuations. This preference is expected to intensify when a clearer path to interest rate reductions replaces the current high-interest-rate policy, with such a transition anticipated to commence in the second half of 2024. Investors are keenly watching for these shifts in market dynamics, anticipating a positive turn in foreign investment sentiment in the coming months.
Industry Groups Drawing In Cash Flow
As the stock market has nearly entirely reflected the business results of the fourth quarter of 2023, attention is now shifting towards the forthcoming release of business performance data for the first quarter of 2024. Consequently, much of the trading activity in March is anticipated to revolve around information pertaining to the business results of companies during the initial quarter of 2024. This industry group is expected to attract robust cash flow.
Drawing insights from the business results of the fourth quarter of 2023, experts at Mirae Asset Vietnam Securities (MAS) have identified stocks exhibiting stable business performance, sustained growth, and compelling narratives. Their selection criteria are derived from a combination of the SEPA method by Mark Minervini for identifying stocks with strong fundamentals, and the Canslim investment method by William O'Neil. Notably, stocks belonging to stable industry groups such as food, chemicals, and insurance are deemed relatively secure choices. Additionally, industry groups experiencing gradual recovery, such as real estate and certain stocks, are considered suitable options, particularly when their prices fall within attractive ranges. Investors are advised to keep a close eye on these sectors, expecting potential opportunities based on the forthcoming business results.
The primary catalyst for cash flow growth, particularly among individual investors, is expected to be the record low interest rates. Bank deposits are witnessing a continuous increase as alternative investment channels remain relatively limited. Gold prices have surged, and the real estate and corporate bond sectors require considerable time for recovery. Given that individual investors represent a significant 92.2% of the average daily trading volume in the entire market for 2023, SSI Research predicts substantial leaps in the VN Index in 2024, driven by this influx of capital.
The outlook for 2024 suggests a relatively favorable year for the stock market, with a robust recovery anticipated following deep correction sessions. Investors are advised to consider buying during market adjustments, taking advantage of potential opportunities. Moreover, in the context of record low interest rates, high dividend yields are emerging as an attractive factor for cash flow, adding an additional dimension to investment considerations.
