Prices of essential goods and raw materials are increasing rapidly, and the DJ and S&P 500 stock indexes have plummeted nearly 20% since the beginning of the year. This could be a warning sign for global investors to look deeper into stock market prospects and understand which industry group would bring satisfactory results in an investment in Vietnam.
Investment opportunities
The recent sharp correction of the US stock market was partly influenced by the decline of many stocks, including technology stocks which were once a phenomenon. However, there is a developed and large-scale stock market with many technology stocks that have been overvalued. As for the emerging and marginal stock markets, there is still a chance for a downward correction like in the past when the VN Index dropped from 1,530 points to the bottom of 1,200 points.
Inflation has increased sharply in the US and European countries, while the inflation rate in Vietnam has not been a cause for worry. Vietnam has a strong open economy with active participation in Free Trade Agreement (FTA), robust import-export activities, fast disbursement speed of Foreign Direct Investment (FDI) projects, and the tourism and services industries recovering quite well after the Covid-19 pandemic. These are being considered the bright spots for Vietnam. Investment opportunities in an economic environment like Vietnam are still bright, compared to other countries in the region and the world.
In 2022, the growth of Vietnam's economy depends a lot on public investment and economic support packages. While Vietnam's inflation growth rate is lagging behind other countries in the world, the State Bank of Vietnam considers that effective inflation control is preferred at the expense of lower GDP growth, although it is still higher in Vietnam than in other countries in the world. In the Southeast region, Vietnam and the Philippines are expected to recover better than other neighboring countries.
When inflation is high, purchasing power decreases and currency depreciates. High-quality stocks, and the prospect of revenue growth and profit is less affected by the economic environment with low buying price. This is entirely consistent with the recent Well Fargo research data on the US stock market, when statistics from 2000 to 2022 show that investment in cyclical stocks benefited from economic recovery and inflation. The increase in input material prices, investment in developing countries, and investment in commodities, crude oil, iron ore, and rubber gave good returns of 15% to 18% or more.
The recent correction of the VN Index from the peak of 1,530 points to a low of 1,160 points has made the P/E of the VN stock market drop to 11x-12x. Many stocks also fell deeply from peak to the bottom in May after dropping around 40%.
After more than 18 months of net selling on Vietnam's stock market, foreign investors are showing signs of returning even though the transaction value is not much, with April showing net buying of more than VND 3,600 bn. Many investment funds also plan to return back to Vietnam and have begun to gradually buy shares of listed companies since April, when the Vietnamese stock market fell. The buying value in April and May also shows that foreign investor cash flow is once again returning.
Growth stocks
During the period 2011 until 2013, insurance stocks such as BVH and PVI had a good growth rate, as stocks that pay stable cash dividends and bring reasonable returns to investors. During the years 2020 until 2022, when Vietnam participated in new generation FTAs such as CPTPP, EVFTA, USFTA, and RCEP, port stocks and chemical stocks have been big beneficiaries. Many stocks with strong revenue and EPS growth such as HAH, DPM, and DGC have had impressive price increase. This will bring investors who persist in buying stocks selectively and with promising business results. Now priority will be given to cyclical stocks such as chemicals, fertilizers, energy, oil, and gas.
Among group of petroleum stocks, especially midstream and downstream stocks, the two world standard oil prices of WTI and Brent are anchored above the USD 110 per barrel mark. Oil and gas enterprises can fully expect good business results in the coming period, when several large projects will bring revenue and profit to these businesses, such as the White Lion project phase 2, LNG Thị Vải, Camel Gold, Kèn Bầu, and super project Lot B-Ô Môn which will start at the end of 2022.
Therefore, investment during a period of inflation and ongoing tensions between Russia and Ukraine may be a reasonable strategy, despite price of goods and raw materials increasing, revenue and profit prospects of listed companies weakening, and investing in some stocks risky. Accordingly, when the VN Index and many stocks fell too low, many promising stocks dropped to a suitable price for smart investors to be willing to buy with a long-term view in mind.
The stock bear market is also the beginning of a bull market trend. Smart investing still means choosing stocks carefully, prudently, and holding for the right amount of time with the expectation of satisfactory returns.
