Monthly Market Outlook

Monthly Market Outlook
Monthly Market Review & Outlook – October 2021: Looking forward to a brighter month
Q3 macro data reflected the government’s strict lockdown measures. The fourth wave of Covid-19, which has lasted longer than expected, forced us to lower our earnings outlook for banking, consumer & retail, oil&gas, although we were already even more conservative than consensus. Bank profitability could be challenged, as we expect NPLs to be higher than market forecasts. According to the SBV, the ratio of reported NPLs plus inherent NPLs (VAMC, legacy, restructured loans) to total loans is expected to range between 7.1% - 7.7%. During the Aug-Sept period, the VNIndex traded sideways in a tight band, suggesting to us that negative GDP growth rate and a bump in Q3 corporate earnings have mostly been priced for. Despite these risks, investment flows continued but shifted toward mid- and small cap names, especially those with solid Q3 results such as steel, sugar, fertilizer, chemicals, shipping, and export-related companies. In contrast, bank shares, which led the market in H1 2021, have corrected between 10%-30% from their peak. The government’s strategy shift from “zero Covid” to a more flexible approach, should be a catalyst for the VNIndex to break out of its consolidating pattern in October. 


Monthly Market Review & Outlook – September 2021: Gradually getting through challenges
The equity market has partially priced in a significant slowdown in Q3 corporate earnings growth, clouded by the COVID-19 Delta variant outbreak since May. From a peak of 1,420 set in July, the VN Index experienced a -12% correction later in the month. After a slight recovery over the first two weeks of August, the VN Index corrected -5% over the past two weeks of August, when news of production disruptions became more commonplace. On the macro front, August data exhibited that the country paid a short-term economic cost from its ‘all-in’ approach to control the virus. As such, a pullback in the Q3 GDP growth should not come as a surprise, as everything from consumption, investment, and net exports are all weaker YoY.  


Monthly Market Review & Outlook – August 2021: Corrections provide accumulation opportunities
As the earnings season has come and gone, the stream of quarterly corporate news updates should subside. On the macro side, inflation should well stay below the Vietnamese government target of 4% for 2021.  Lower inflation provides ample flexibility for dovish monetary policy, such as lowering the reserve ratio requirement, or adjusting policy rates. The fourth outbreak of Covid-19 has negatively impacted the nation’s production activities in Q3, and an acceleration of public investment would go a long way to support growth. The upcoming high season for export activities will be critical to improving the nation’s trade balance. In Q3, given the severity of the pandemic and a significant slowdown in corporate earnings growth for H2 2021, investors should only selectively accumulate stocks during correction phases. Investors should specifically hone in on stocks with decent profit growth over the last quarters of 2021 (such as brokerage, real estate, & chemicals), stocks which boast specific catalysts (such as capital raising, state divestment, etc.), and/or fit within specific investment themes (such as public investment & commodities). In August, the VNIndex could test the 1,420 peak. Support is 1,340 and 1,300 points. In a worse-case scenario where the pandemic becomes more severe, the VNIndex could retreat even deeper to 1,261 points, in our view.  



Monthly Market Review & Outlook – July 2021: Balancing risk and return

A rosy Q2 earnings picture has been largely priced in. News of Q2 earnings gradually unfolded over the last few weeks. Undoubtedly the banking, brokerage, and materials sectors have had stellar growth. Companies exposed to commodities and exports (such as STK, MSH, DGC, DRC, GMD, HAH, PTB, GAS, PLX, BSR…) have also posted strong results, bouncing with vigor of their low base set in Q2 last year. For further detail, please see our earnings preview on corporate Q2 earnings via this link. 2021 forward P/E was 15.7x on 30th June based on our coverage, still offering additional upside to our 2021 target of 18.0x for VNIndex. However, the banking sector accounted for the largest weight of the VN Index (34%) and topped earnings forecasts for in H1 2021 (+59% YoY based on our coverage). With the domestic banking industry being characteristic of a low P/E, this sector has singlehandedly pulled down the overall market valuation. Excluding banks, market P/E is at 17.8x as of 30th June, implying limited upside from current levels for non-bank stocks. 


Monthly Market Review & Outlook – June 2021: The market enters a consolidation period

Q2 earnings outlook: In the second half of June, we expect Q2 corporate earnings results to gradually leak out. Overall, Q2 earnings growth will no doubt continue to be stellar, given the low base from Q2 last year and momentum building on from Q1. Banking, brokerage, and materials are sectors which should lead growth. Export-oriented companies such as textile & garment, and fisheries should also post strong earnings growth, vaulting from the low base set in Q2 last year. 

Retail investors will continue to rock the market. We have witnessed a massive money flows into the market, as retail investors have been unable to resist the temptations of attractive equity market returns. The current low deposit rate environment has   fueled the run to stocks. A record monthly of 113,543 new trading account openings occurred in May says it all. Simply estimated, every 100,000 new accounts could bring VND trillions of fresh capital to the market (vs. the total margin lending amount, currently at more than VND 110 tn). During the first five months of 2021 total new accounts reached 480,000, or about 22% higher vs. all of 2020. Due to the decisive buying force of local investors, foreign sell-offs have become less impactful over the near-term. Foreign investors are now just accounting for 7.49% of total trading value in May 2021.

This month, we add GAS, PLX, VHC, DGW to our top call list, while replace KBC by DXG. In contrast, we remove HPG and DGC. For banks, although we do not recommend adding banks at the current market valuation, we still hold a positive view on ACB, MBB, CTG and TCB and shareholders can hold these stocks despite short-term fluctuation.


Monthly Market Review & Outlook - May 2021: Sell in May might not be a big challenge

April showered us with a relatively fruitful earnings season; May could lack that springboard of strong fundamentals that propelled a positive market last month. However, with positive macro data exhibited during April, GDP is shaping to be a V-shape recovery with significantly eased CPI. Growth is expected to peak during Q2 off of last year’s low base. Supportive conditions such as a stable/low interest rate environment, tax breaks for impacted enterprises, and the establishment of Circular 03 for bad debt treatment by banks should culminate in a comprehensive recovery in the upcoming months. For May, however, we are a bit more cautious and recommend investors closely follow market movements.  There should be two scenarios for the VNIndex in May: (1) The VN Index continues to climb towards a new high toward 1,350-1,400;  or (2) the VN Index retreats. Our take? We believe the former will be more likely given the current market’s attractive valuation and the Government’s determination in keeping the 4th pandemic wave in control. 


Monthly Market Review & Outlook - April 2021

Q1 earnings and AGM season likely will be key catalysts for April, as investors seek proof of a tangible economic recovery. The banking sector exhibited surprisingly strong earnings growth, majority of banks under our coverage posting greater than 50% YoY increase in PBT while VCB and VPB have generated over 25% YoY growth. Steel companies (HPG, HSG, NKG) have also achieved spectacular growth via decent demand and higher steel prices.  The beaten down sectors such as real estate (DXG, KBC) and oil & gas (PLX, BSR, OIL) have witnessed massive earnings rebounds.  As such, corporate earnings are well on track toward recovery. 


Monthly Market Review & Outlook – March 2021

Q1 earnings will be the main focus to watch in March. Corporate earnings have consistently posted steadily rising results along a recovery trajectory ever since the trough in Q2 last year. With a low base set in H1 2020, we expect companies to post strong earnings growth in H1 this year. Positive macro data in the first two months of the year has been encouraging, and we anticipate Q1 GDP to also be higher on a YoY basis. The rise in commodity input prices should not immediately be reflected into Q1 margins, as companies normally have hedged and secured their material contracts in advance.

At the end of Feb 2021, the P/E of the market (based on SSI coverage) was 15.8x, offering a 14% upside to our target 2021 market P/E of 18x. Vietnam’s P/E is more attractive than regional peer when considering 2021 earnings growth (21.7%, based on SSI coverage). As such, future corrections should provide opportunities to accumulate names with solid fundamentals. In terms of preferred sectors, we remain constructive on banking, property, steel, and logistics at the moment, while we recommend investors to tactically increase exposure to energy when the opportunity presents itself.   


Monthly Market Review & Outlook - February 2021

Correction is an inevitable feature of markets, especially after such a long and drawn out rally. Although we hold the firm belief that Vietnam has done well in the face of the pandemic and will continue to do so (as vaccines are expected to be available and rolled out to market in Vietnam starting Q1 2021), the stock market still necessitates close monitoring, especially with the Lunar New Year holiday ahead and mobility across the country is at its highest.   When there is no longer a rising tide to carry all boats, inflows tend to be more selective in terms of particular sectors and stocks. At the end of Jan 2021, the P/E of the market (based on SSI coverage) was 14.2x, offering a 27% upside to our target 2021 market P/E of 18x. Vietnam’s P/E is more attractive than regional peer, especially when considering 2021 earnings growth (25%, based on SSI coverage). As such, corrections should provide opportunities to accumulate names with solid fundamentals. In terms of preferred sectors, we like banking, property, steel and IT the most at the moment.


Monthly Market Review & Outlook - January 2021

For years to come, investors will look back at 2020 as one of the most turbulent years in modern history, with the Covid-19 pandemic causing the largest shock to the global economy in decades. Unprecedented fiscal and monetary responses have fueled massive liquidity driven rallies in the share markets, while rapid vaccination developments have increased the likelihood of a near-term recovery. The Vietnamese stock market was characterized by a short-lived bear market for just the month of March, and then recovered at a velocity that defied most expectations for the remainder of 2020 - closing the year at its highest level since April 2018. 


Monthly Market Review & Outlook - December 2020

November distinguished itself as one of the best months of the year for global equities, and Vietnam was no exception. The VN Index gained 8.4% to 1003.08 points, marking the fourth consecutive months of gains in a row. Markets were pleased by the announcement of three COVID-19 vaccines, which acted as a further market impetus to the post-US election rally. Election day has come and passed in the US, and the transition process from Trump to a Biden administration is now underway as the world awaits certification of the US election results. The Vietnamese stock market has heated up, as the psychological resistance barrier of 1,000 points was broken successfully during the last week of November.  Retail investor sentiment remained extremely strong, as evidenced by historical high liquidity as well as record level of new share trading accounts opened during the month (41,080 new accounts, up 13% MoM, being the highest monthly level since Dec 2017). 


Monthly Market Review – October 2020

The VN Index maintained its upward trajectory and extended gains by 2.24% to 925.5 points last month, marking October as the third consecutive increase month in a row. October was strong during the first three weeks, bolstered by resilient Q3 corporate earnings and the announced proposed re-weighting of Vietnam by MSCI (MSCI Frontier Index) from 12.5% to 28.8%. The proposal is expected to be executed in five  steps, beginning with the departure of Kuwait from the Index in December. There were also hot topic events, such as state-owned bank stock dividend plans, and companies announcing their intention to list on HOSE. The market re-tested the 960 level during last week of October, as investors took profits from the rally.  


Monthly Market Review – September 2020

Strong and effective measurements in Vietnam to contain the virus and mitigate the impact on the economy have been an irresistible draw to investors. Higher than expected Q3 GDP growth (2.62% vs. the 1.04-1.69% earlier expected by the Ministry of Planning and Investment) and resilient exports & record trade surplus  in the first nine months of the year with a stable VND culminated in a resilient September. The VN Index rose during the first week of September, as large cap and full-foreign room stocks continued rally on the back of newly raised fund from Taiwan. The market surged again during the last two weeks of September, supported by banks (boosted by effect of dividends; shares with plans to moving to the HOSE; and on M&A speculation) and other blue chips such as VNM, HPG, VIC.  The VN Index closed the month at 905.21 points, gaining 2.7% MoM. 


Monthly Market Review_August 2020

After a correction in July came about from an unexpected return of Covid-19 to Vietnam, the VN Index nevertheless staged a strong rally in August, gaining 10.43% and closing the month at 881.65 points. Although the number of infected cases rapidly increased from 546 to 1044 in August (with more fatalities reported; in the double digits), the Vietnamese government applied a targeted approach to the situation that is more flexible from the earlier April nationwide lockdown. Strict social distancing measures were put in place only for the coastal city of Danang and a few other select provinces (Quang Nam, Quang Tri, and Hai Duong). As the areas affected were more limited in scale, investors thus were more complacent this time around in their reaction to coronavirus news and its effect during the month. Liquidity averaged $222 mn USD in August via order matching across 3 bourses, up 16% MoM and 43% YoY. In August, foreign investors acted diametrically opposite to the confident sentiment of local investors, and registered a net withdrawal of $159 mn USD during the month. Top selling tickers were CTG, HPG, VCB, VRE, and VNM while top buys were VHM, PLX, FUESVFVND, PHR, and HDB. It has been observed that outflows were mostly from the portfolio restructuring of active funds. Meanwhile, ETF net inflow was $18.35 mn USD during the month, mostly via the Diamond ETF.


Monthly Market Review – July 2020

The market corrected again in July, with the VN Index closing at 798.4 points (-3.24% MoM) and extending YTD losses to -16.92%. Investors reacted negatively as new COVID-19 cases in the coastal city of Danang were announced on 24th July after 99 consecutive days with no new coronavirus cases the entirety of Vietnam. However, we did observe less of a panic mindset among investors during the 2nd correction, as market participants seemed to have learned lessons from the previous panic in March. With a second wave of Covid-19 in Vietnam, and a complicated global pandemic situation, investors understand that this virus will be with us for an extended period of time in contravention to previous perceptions. A number of vaccines look promising and are entering the next phase of trials. Still, we are quarters away from a resolution for this virus and the markets are pinning their hopes on a return to normalcy.