What will drive the stock market in 4Q2021?

In KB Securities's view, the main stock market trend in 4Q2021 is recovery, but the possibility of a breakthrough is quite unlikely. Photo: Quoc Tuan

Global financial institutions lowered Vietnam's 2021 economic growth forecast from 6.7% at the end of 2Q to 5.3%. This also happened to most countries reeling from the Delta variant. Most recently, the Ministry of Planning and Investment sharply lowered its forecast for domestic GDP growth in 2021 to between 3.5%-4% in the base scenario.

IHS noted Vietnam PMI fell another five points from 45.1 in July to 40.2 in August, the third consecutive month of decline. Social distancing measures and travel restrictions have caused output, new orders, purchases, and employment rates to all fall rapidly. The lack of raw materials and the limit   of transportation made input costs spike. To compensate for this, output prices also surged, although the increase was much lower than input costs to maintain sales. August IIP was hit hard and went down 4.2% MoM and down 7.4% YoY as many localities had to apply social distancing, adhering to Directive 16 amid the quick spread of Coronavirus. To be more specific, mining, processing, manufacturing decreased 2.4% and 9.2% while electricity production and distribution and waste and wastewater treatment increased 1.5% and 0.2%. Similarly, the sales of retailing and service activities in August also recorded a 10.5% MoM or 33.7% YoY decline to VND279.8 trillion. 8M21 retail sales of consumer goods and services were down 4.7% to VND3,044.5 trillion.

As of September 28, 2021, Vietnam received more than 38.3 million doses of the COVID-19 vaccine, and the number of people given two shots of the vaccine was 8.1 million people or 8.3% of the population vs 21.1% of the population that received the first shot. Vietnam’s 8.3% is quite low compared to other Southeast Asian countries such as Thailand (22.9%), the Philippines (19%), and Malaysia (60.9%). KB Securities estimated that Vietnam would need nearly 100 million more doses of vaccine to give the second shot to all people over 18 years old (equivalent to 70% of the population). 

On the assumption that the vaccine supply is not limit  ed, and the injection schedule reaches more than 800,000 shots a day, Vietnam should complete the above goal no later than mid-1Q22. Thus, it is very unlikely that Vietnam will completely remove social distancing regulations nationwide before the end of the year. However, the positive point is the quick vaccine rollout in Hanoi and Ho Chi Minh (which expect to reach the rate of herd immunity in the second half of 4Q), making it possible to maintain the eased social distancing in these two cities.

Lessons from developed countries show that the complete removal of the distancing measures and the reopening of the economy may not bring sustainable results even when the goals of vaccination are achieved. In fact, some countries with a high rate of fully vaccinated people like Israel (62%) and Singapore (80%) reopened the economy and lifted social distancing protocols but had to tighten COVID prevention measures again due to surging new infections.

The WHO projected there might be a possibility that new variants of the virus besides Delta, Lamba, and MU can be resistant to the first-generation vaccines. Patients infected with COVID-19 also tend to be younger in the UK, Israel, and the US. As a result, developed countries are about to give additional doses to raise people’s immunity to new variants and give vaccine shots to those under 18 years old. KB Securities are afraid that these policies will aggravate the shortage of vaccine supply, especially in developing countries including Vietnam. Without timely technology transfer or approval for domestic vaccine production, the vaccination program in Vietnam may face many difficulties, and the application of social distancing measures may last longer.

Most of the stock markets KB Securites observed saw positive developments when the pandemic situation was improved. For the Vietnamese stock market, this stock company expected a similar scenario to happen in 4Q when the speed of vaccination is accelerated in major cities, and social distancing regulations are relaxed, which will help the economy and business activities rebound given supportive fiscal and monetary policies.

However, it is unlikely that the social distancing regulations would be completely removed nationwide, or 70% of the population would be fully vaccinated in 4Q. Instead, more loosened measures should be maintained to prevent resurgent Coronavirus cases, which means it is difficult for the economy and production activities of listed companies will return to normal operations in this quarter. Therefore, KB Securities thinks the main market trend in 4Q is recovery, but the possibility of a breakthrough is quite unlikely.