Stock market showing no indication of growth

(SGI) - The second quarter business results show that the market has been deluged while the VN Index is showing no signs of improving since early July, with figures indicating that the Price-To-Earnings (P/E) ratio is going even lower. 
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Although all the micro-economic and macro-economic advantages are available, it seems that there is no key catalyst for trending towards a new growth level at the stock market.

Profits vary

Initial statistics show that around 600 corporations have made public their financial statements in the second quarter of 2022. The number could be a bit higher if all the estimated figures were actively made public. Figures will continually be updated over the next few days, but the sales and profits of listed corporations will rise positively. For instance, as estimated by Vndirect Securities Corporation, considering 590 corporations listed by 26 July the total sales and profits in the second quarter increased by 25.3% and 17.9% respectively, over the same period last year. Stocks with high capitalization of more than VND 10,000 bln have recorded an average of 34.3% increase in sales and 24.9% in net profits.

It is certainly normal for the stock trading market to have dark and bright shades. As is the case of the tourism and aviation section which has continued to suffer huge losses. The securities section varies widely, with the high profits group including VND, SSI, VCI and HCM while the group with huge losses includes SHS, BMS, TPS and APG. This kind of variation is quite easy to predict because it is very logical. The Covid-19 pandemic made the recovery of the tourism industry extremely challenging and the plunge of  stock market prices from April to June caused heavy losses in securities, especially in the segments of self-trading and brokerage.

In contrast, the petroleum sector saw sales rise sharply by about 85% in the second quarter, compared with the same period last year, with the total profits increasing 4.5 times. The stock value of the chemical section also soared by 178%. Even the energy stock value has been experiencing big changes. The growing demand for electrical power has enabled corporations in this section to do pretty good business. Hydro-electrical energy corporations enjoy some advantages while coal- and gas-fired power corporations have been facing certain setbacks because of increased oil prices.

Even though sales and profits vary widely among corporations, the market is generally witnessing a flourishing period in most of the listed corporations. The figures of profits in the second quarter are gradually adding to the figures of the general estimate value of the market, while the VN Index still remains at the bottom. This creates an obvious effect that the market price is getting lower. By 28 July, the P/E ratio of HoSE was just 12.5 times. It should be noted that the P/E ratio of the HoSE was at its bottom in March 2020 by 10.3 times.

Depressed market

Several analyses have pointed out that the current market price is very low, compared with the average rate in the past. For instance, the average P/E ratio of the market over the last five years was 16.3 times, or the average over the past ten years was 14.5 times. The market price is now getting lower, but Vietnam's stock market has not grown since early July. It seems to be a paradox that is very hard to understand.

However, such comparison with the past is not always appropriate, especially when it comes to looking at the representation of the VN Index. The various profits, together with the cycle-based prospects of stocks, are creating a market period totally different from the past. Stocks and market prices no longer rise together, but now the cash flow in the market is taking different opportunities, depending on the sections and industries, and in several cases, this is more likely to cause adverse effects on the VN Index. It is true that only the prices of specific stocks are rising, but indices have not increased.

The top ten corporations in Vietnam by market capitalization are able to regulate the  VN Index, namely, VCB, VHM, VIC, GAS, BID, MSN, VNM, NVL, CTG and TCB have shown almost no growth since early July or have generally laid their growth equal to their losses. VCB has increased by 0.3%, VHM has decreased by 5.6%, VIC has fallen by 9.5%, GAS has dropped by 6.9%, BID has climbed by 6.1%, MSN has slipped by 1.2, VNM has gone up by 3.5%, NVL has gone down by 1.1%, CTG has increased by 3.3% and TCB has risen by 3%.

It is obvious that slippage appeared in all the top six, except VCB increasing by a minimal per cent, while the stock prices of smaller corporations by market cap have experienced a better increase. There have been lots of complaints about why the VN Index has never been able to surpass the 1,200 point. Some have even said that the market has not grown for decades because the 1,200-point milestone appeared as far back as in 2007! Nobody would raise this point if they thoroughly understood that the story of the VN Index is not the story of the market, let alone the story of stocks.

The differences in the current market period have made it impossible to make any appropriate comparison with the past, in terms of scope. Throughout its history, the VN Index has only twice reached the 1,200-point mark, in 2007 and 2018, and only surpassed it in April 2021. During such periods, the number of newly issued stocks increased by high percentage points, especially in the second half of 2021 and early 2022 when the big increases of stock prices enabled corporations to successfully issue huge number of shares.

Apart from paying dividends with shares, large numbers of issuances in a short time did actually take away huge amounts of cash in the market and money transferred from the investors' accounts to the share-issuing corporation accounts. The market does not have enough cash when there are too many newly issued shares, making it extremely hard for new waves of increases, unless new flow of cash is added to the market. There is a bigger problem of a cycle of monetary easing, even tightening, which is very likely to happen around the world in the near future.

Hence the question arises as to what this means to the market, if it does not have a chance to improve, or where lies the opportunity for growth. The big differences in corporate profits in a situation of cashflow shortage requires the investors to be more active and intelligent. Most investors have only moved their cash between industries and sections in the form of speculation. This means that a good increase in one section would result in no rise in another section. The current market cycle is the way cash is moved between the sections when there is a tendency for groups of corporations to increase in the long run.