Stock market: Short-term unforeseen swings

"Soft" Valuations

Key economic data point to solid economic growth in the medium future. However, short-term swings in the stock market (VN-Index) are unpleasant due to their extreme volatility and divergence.

The overall economy is progressively improving, aided by external causes, however, economic recovery is uneven. The benefits are primarily concentrated in leading industries, while most small enterprises and less advantageous sectors continue to suffer significantly.

Mr. Tuấn feels that now is the time to "choose the best" for medium-term investment prospects, with "extremely soft" values owing to constant changes into 2024.

The Vietnam stock market's P/E and P/B ratios are at highly appealing levels, indicating considerable potential for a "re-rating" of P/E and P/B valuation zones in accordance with overall economic growth nd business profits growth over the next two to four quarters. The VN-Index's growth potential is anticipated to approach 1,300 during the next six months.

Furthermore, Vietnam is almost expected to be updated in the coming six months. One of the significant macro and direct highlights of the September stock market was the government's vigorous drive to modify regulations and comprehensively handle concerns linked to international margin trading (pre-funding), which is the most critical factor for qualifying for an upgrade to the "FTSE Secondary Emerging Market."

FIDT expects the Pre-funding mechanism to be in its final stages and could be submitted to the National Assembly in the upcoming October session. The approval of the Pre-funding circular is almost guaranteed, as the government has expressed a strong commitment to the upgrade. This is currently the most important foundation for FTSE Russell to consider upgrading Vietnam to "FTSE Secondary Emerging Market" in the Q3 2024 Review (October 8) or Q1 2025 (March 2025).

Therefore, this attractive valuation zone will also attract significant foreign capital in the next 6 to 12 months.

Stock Market Scenarios

Looking back, the VN-Index has undergone three unpredictable corrections since June: the correction at the end of June (1,310 – 1,240 points), the July correction (1,300 – 1,180 points), and the current correction (1,290 – 1,250 points).

These corrections correspond to major risks that the Vietnamese stock market has faced, including macro (exchange rate, interest rate risk), global (DXY index surge, recession risks), as well as personnel stability and historical foreign net selling over the past two years.

It is obvious that the existing VN-Index has accurately represented these risk groupings. Because of these constant modifications, most stock prices are quite modest. Mr. Tuấn is bullish about the medium-term stock market outlook, thinking that investment circumstances no longer pose large dangers, with strong possibilities supported by economic development and potential expansion of listed firms.

According to FIDT experts, the upward trend will be more sustainable, better reflecting the fundamentals of the economy and companies, and will be less affected by external factors, as seen in the recent period. Thus, the probability of the Base and Positive Scenarios occurring in the last three months of 2024 is high, in line with the exceptional economic growth seen since Q2 2024.

Base Scenario: A target of 1,280 – 1,300 points for the VN-Index is entirely reasonable in the short term, as the market completes its sideways accumulation phase.

Positive Scenario: A target of 1,340 – 1,360 points, with the expectation of positive earnings growth for listed companies in Q4 2024 and Q1 2025.

The present investment strategy should prioritize industries with medium-term advantages, attractive valuations, and high certainty of core business development.

An essential criterion to evaluate is a company's "growth potential," which is predicted to increase in the medium term but has yet to be completely acknowledged by the market. Furthermore, given the frequent short-term volatility, we urge that investors pursue a consistent investing approach, concentrating on essential variables such as medium-term favorable prices, corporate growth prospects for the next 2-4 quarters, and strong core company performance.

Stock picks

Industries benefiting from robust export growth are set to generate solid business results in H2 2024, particularly export industries with favorable results already forecast for July and August. Furthermore, chemical, seafood, and rubber commodity prices are displaying short-term positive, with noteworthy firms such as: Textile & Garment (TNG, MSH, STK); Chemicals (DGC); Seafood (MPC, FMC); Rubber (GVR, PHR, DPR); and Industrial Real Estate (LHG).

In addition, the hydropower and livestock industries exhibit strong estimates for Q3 2024: Livestock (DBC); Hydropower and Renewable Energy (HDG and TTA).

"Several companies are expected to show remarkable growth stories in 2024 – 2025, offering significant growth potential. We suggest some companies with outstanding growth opportunities at reasonable valuations: Banking (STB, HDB); Livestock & Biotechnology (DBC); Hydropower & Renewable Energy (HDG, TTA); Utilities (BWE)," said Mr. Tuấn.

The real estate industry also has good medium-term values. According to FIDT specialists, completing the legal framework for the real estate industry would assist enterprises settle legal challenges that have arisen in recent years. Furthermore, there are indicators of rising real estate demand, and the industry may shortly get government backing. PDR, DXG, VHM, and VRE are some of the key real estate businesses to monitor.