Vietnam stock market may keep moving sideways

Positive macroeconomic indicators

Following Typhoon Yagi, the economy has shown a steady recovery, according to October macroeconomic data. Compared to the same period in 2023, import-export activity continued to expand by double digits, reaching 10.1% YoY and 13.6% YoY, respectively. The PMI rose from 47.3 points in September, when the typhoon temporarily damaged the economy, to 51.2 points, surpassing 50 points. Although the improvement was very slight in October, S&P Global reports that both output and new orders had recovered, reflecting the manufacturing sector's rebound. The manufacturing sector accounted for the majority of the 8.8% YoY increase in FDI disbursed in October.

Other conventional growth engines like governmental investment, retail sales, and tourism did not change. October's headline CPI increased 2.98% year over year and 0.33% month over month. The headline CPI grew by 3.78% in the first 10 months of the year, which is consistent with our prediction for the entire year (around 4% and below the government's aim).

Assuming that (1) credit growth will continue to recover in the final months of the year and (2) exchange rate and inflationary pressures are not too high, KBSV predicts that the average deposit interest rate will remain low and slightly increase by 10–30 basis points for the remainder of the year, depending on the bank. This will help the SBV maintain low interest rates to support the economy and encourage credit demand.

Advantageous catalysts

According to KBVS, the Vietnamese stock market has a few beneficial triggers. With encouraging readings from important measures including GDP growth, export turnover, IIP, and PMI, the macro indicators for October 2024 and the third quarter of 2024 continue to show the stability of the macroeconomic climate.

As anticipated by the market, the FED lowered its benchmark interest rate in November and is very likely to do so again in December. This supports the State Bank of Vietnam's (SBV) strategy of keeping interest rates low, which promotes economic growth and increases stock market momentum by reducing exchange rate pressures. Additionally, the repatriation of foreign capital flows is positively impacted by the closing interest rate gap between Vietnam and the United States.

Market patterns are probably going to continue to be influenced by positive 3Q earnings season results.

Some foreseeable risks

However, there are also certain known risks associated with the Vietnamese stock market. First, oil prices and freight rates are more volatile than initially anticipated due to the intensifying conflicts in the Middle East and other regions. A more extensive battle would upset the geopolitics of the area and have a detrimental effect on the economy.

Second, Donald Trump's possible reelection would shift market expectations about policy changes, especially in trade, which would have a big impact on economic ties.

Third, when Donald Trump formally assumes office, the USD/VND exchange rate might experience further upward pressure.

Fourth, commodity prices and export activities may be impacted by a drop in consumer demand in the Chinese market.

Market outlook

The daily chart indicates that market momentum is moving toward distribution due to the collapse of the support zone at about 1,200 points and the appearance of multiple strong bearish candles with bigger volume than the bullish ones. Despite not yet reaching oversold levels, momentum indicators like the RSI, MACD, and stochastics all show a preponderance of selling pressure. Consequently, the short-term trend seems to support a correction that lasts until November.

The VN-Index is building a modestly ascending accumulation range within the 1160-1310 zone on the weekly time frame chart, displaying a narrowing pattern with each subsequent low higher than the previous one, after marginally above the 2023 peak. A sideways trend with alternating ups and downs is expected to continue to be dominant as long as the lower boundary holds, even though this trend raises the possibility of an "ascending triangle" pattern.

The VN-Index still has the capacity to rise at lower support levels, according to several analysts, even though the short-term market trend is leaning bearish. The analysts' preferred scenario is for the VN-Index to show a positive recovery response at about 1,200 points, after which the sideways trend will continue. In the other case, the VN-Index might correct further deeply below 1,200 points before rising again.