Is the stock market still in a downtrend?

After hitting a low of 1,255 points, the VN-Index continued to fall, reaching a low of 1,040.

Strong Growth

Following a bottoming out in November 2022, the stock market went through a consolidation period for the first five months of the year before continuing to rise for 3.5 months from June to mid-September 2023. The VN-Index had gained by 14.6% year on year at the conclusion of Q3 2023, making it one of the most profitable investment channels in 2023.

The causes for this surge in growth derive from predictions of economic recovery and robust corporate activity in the second half of 2023, which are supported by consistent monetary and fiscal policies. The State Bank of Vietnam extended monetary policy by decreasing interest rates four times, bringing them to levels comparable to those seen during the Covid-19 support period. Furthermore, the government's fiscal policies provided a variety of options to boost the economy and relieve challenges in the real estate market. These reasons have resulted in predictions of a business rebound for publicly traded firms in the last six months of the year.

Context of the shock

Most organizations' updated business outlook forecasts from mid-September 2023 revealed that the business rebound in the later half of 2023 did not fulfill earlier predictions. Vietnam's GDP growth rate for Q3 2023 showed a slower recovery than expected, standing at 5.33%. According to forecasts, Vietnam's GDP for the entire year 2023 would be about 5%, which is lower than the prior average projection of 6.5%.

Furthermore, internal economic and listed company recovery data fell short of expectations. The strengthening of the US dollar, along with the return of foreign money from emerging nations, including Vietnam, has resulted in ongoing net selling by foreign investors in the stock market. During this time, the USD/VND exchange rate came under increasing pressure, and the State Bank of Vietnam was forced to issue bonds to absorb excess VND liquidity in the system, therefore sustaining the exchange rate. This indirectly put pressure on the stock market, particularly on market sentiment.

Because of these internal and external problems, the VN-Index fell by more than 12% from mid-September 2023 to hover at 1,110 points on October 23. The Vietnamese stock market has entered a phase of "dull" trading, characterized by limit ed liquidity and negative market sentiment.

Given this background, the stock market is extremely vulnerable to the impact of information variables. Beginning on October 26, news regarding Vingroup and then reports about SK Group potentially divesting more than 10 trillion VND from Masan triggered heavy selling by foreign investors.

The stock market responded unfavorably to this information due to poor and sensitive market sentiment, triggering a major selling binge by international investors.

Appropriate actions needed

According to FIDT's experience and data, when the market drastically decreases due to sensitive information, the market tends to respond forcefully (with a considerable decrease) and quickly. As a result, it is expected that the market's steep downturn would halt in early November 2023 and gradually stabilize. Following that, the market normally recovers or consolidates before reflecting fresh expectations for 2024.

The market is still facing short-term risks as a result of sensitive information, volatile exchange rates, and foreign uncertainty such as the Israel-Hamas war.

However, with the recent correction, medium-term forces are sustaining the market. To begin, the economic picture for 2024 seems brighter, with higher growth projections following the efficacy of economic stimulus initiatives in 2023. Furthermore, the current market collapse has already reflected short-term disadvantages, and market values have fallen into good price levels. This is an excellent opportunity to gradually build up strong stocks for 2024.