Is it time to be greedy in stocks?

The question arises: Is this an opportunity for investors to be "greedy" or "all-in" on stocks?

To answer this question, investors must carefully evaluate the major variables influencing the Vietnamese stock market from a variety of angles. I do a market study using three key categories of criteria to determine whether there is sufficient cause to be "greedy" at this moment.

"Headwinds" from Abroad

Although the FED's rate cut raises expectations that foreign capital will return to net buying, it is highly unlikely that this capital inflow will be large enough to offset the net selling seen since the beginning of the year. A significant portion of the foreign capital that has been withdrawn from the Vietnamese stock market since the start of the year is strategic investment, which is difficult to bring back in the short term, even with the FED’s monetary policy reversal.

To recoup this cash flow, Vietnam's stock market needs a more appealing growth narrative, which it now lacks. Furthermore, while the US economy is predicted to weaken (but likely escape a recession), this does not benefit Vietnam, which has a high degree of openness.

Domestic Factors

As of September 20, the VN-Index has risen 12.6% compared to the beginning of the year, largely due to economic recovery, which could lead to a 18-20% increase in the profit outlook for Vietnamese businesses compared to 2023.

However, to sustain this strong upward momentum of the index in the last quarter of the year, two key factors need to be considered: (1) the extent of economic recovery’s spread to domestic consumption and investment, and (2) the progress in implementing the Land Law, which would unlock real estate projects and reduce risks for the real estate and banking sectors.

Lack of Strong Catalysts

Aside from the anticipation that Vietnam's stock market status would be upgraded, the market currently lacks compelling tales to attract investors, particularly given the high valuation fragmentation. Excluding the banking and real estate industries, the market is relatively expensive. On the plus side, the interest rate and legal environment position equities as one of the finest possibilities for capital seeking opportunities.

Is It Time to Be "Greedy"?

Based on a study of the three primary reasons stated and probable volatility, Mr. Phuong feels there is a very high possibility (base scenario) that the VN-Index would conclude 2024 at a very high level of roughly 1,320 points.

In this scenario, the VN-Index still has around 3.8% opportunity for growth in the remaining months of the year. However, sectoral divergence and individual tales will have a greater impact in the fourth quarter of this year. With this divergence and limit ed growth, the market is likely to remain sideways for some time, and conditions are not yet conducive to "greedy" behavior. Instead, a fair allocation approach centered on picking stocks is essential.

Investors should only consider becoming "greedy" if incoming data indicates a lower risk of a recession (avoiding negative scenarios) and a more optimistic outlook becomes more plausible. This is related to three key factors:

First, U.S. labor and economic data continue to confirm a low risk of recession.

Second, third-quarter 2024 financial reports from the banking sector show an initial strengthening of asset quality and fairly solid expectations for asset quality recovery in the coming quarters.

Third, the legal progress of real estate projects is smooth by the beginning of Q4 2024.

If these conditions are met, foreign capital inflows into Vietnam are expected to return more strongly. Valuations of the two major sectors, banking and real estate, which are currently below their historical averages, will become truly cheap, and the clear recovery outlook of these sectors could drive the market to higher levels while minimizing systemic risks.

Finally, the expert concludes that the current market environment is not conducive to "greedy" stock investments. Instead, investors should aim for a sensible allocation with low expectations. The choice to be "greedy" should be postponed until early November 2024, when third-quarter banking sector financial reports, the adoption of the Land Law, and more detailed U.S. economic data become available. When these variables underpin the market, expectations will not dissipate as rapidly as in recent years.