Will the Vietnam stock market bottom out in August?

As of Jul 29, 2021, the VN-INDEX is currently traded at a trailing P/E 16.5x

The Vietnam stock market experienced a sharp correction of 13.7% from the peak in July following concerns over (1) the coronavirus infection surge which could be considered as the worst outbreak so far and (2) longer-than-expected nationwide lockdown protocols will hurt the macro prospect and businesses outlook, said VNDirect.

At the end of the July 23, 2021 session, the VN-INDEX stood at 1,268.83pts, falling 9.9% mom. However, the index still recorded a 14.9% ytd increase. Meanwhile, the HNX-INDEX and UPCOM-INDEX recorded a 6.7% mom and 6.5% mom decrease, respectively. However, the HNX-INDEX and UPCOM-INDEX still rose by 48.6% ytd and 13.3% ytd, respectively.

The liquidity of the stock market slumped in July as investors worried about the spread of coronavirus with thousands of daily new cases in Vietnam. Total liquidity in 3 main bourses decreased 12.8% mom to VND26,199bn/session (385.2% yoy), of which the daily trading value on HOSE reached VND21,974bn/session (-9.1% mom), while the daily trading value on HNX and UPCOM dropped to VND2,966bn/session (-24.9% mom) and VND1,259bn/session (-34.9% mom), respectively.

The retail shares became the best industry performer in Jul 2021, followed by the IT and Electricity sectors. On the contrary, Oil & Gas, Banking and Steel were the worst performers of Jul 2021.

Foreign investors net bought VND4,581bn across 3 bourses in July 2021, after net selling VND4,939bn in the previous month. The net buying value in July was mostly attributed to the rising of ETFs inflows by foreign investors, especially in the Fubon FTSE Vietnam ETF. For 7M21, foreign investors net sold VND26,040bn in total (vs. a net selling of VND3,483bn in 7M20 and VND19,310bn in the entire2020).

The number of new coronavirus infections per day in recent days has reached thousands of cases, compared with just a few dozen cases per day of three previous outbreaks. Vietnam has applied social distancing rules under Directive 16 of the Government in 19 southern provinces and Hanoi city to prevent the spread of coronavirus. “As cases continue to climb sharply and nationwide social distancing might extend for a couple more weeks, Vietnam stock market is unlikely to firm an uptrend in the upcoming month”, VNDirect forecasted.

Though liquidity dropped in July, but so far, VNDirect hasn’t seen capital flight yet. Stand-by cash of investors in Vietnam brokerage firms as at end 2Q21 even increased 32.3% vs. end-1Q21. This suggests that investors are willing to jump into the stock market when the opportunity arises. According to Vietnam Security Depository Center (VSD), the market recorded over 140.000 newly domestic accounts in Jun 2021, a new record high.

Meanwhile, the business performance of some sectors in 2Q2 was relatively positive. Mining companies posted impressive results in 2Q21 with NP surging 1,230.4% yoy due to higher average selling price (ASP). Steel manufacturers enjoyed higher ASP and strong sale volume, posting a 310.8% yoy growth in 2Q21 NP. Real Estate also posted positive results in 2Q21 due to a low base in 2Q20 and demand for residential property recover in 1H21.

As of Jul 29, 2021, the VN-INDEX is currently traded at a trailing P/E 16.5x which is equivalent to an average 5-year trailing P/E of 16.5x and still a 25.7% discount to the historical peak of 22.2x in 2018. VNDirect expects earnings growth of listed companies on HOSE to increase by the CAGR of 27%/year in the FY2021-2022F period, which is higher than the CAGR of 12%/year in the FY2017-2020 period.

Based on VNDirect’s estimate, FY21 forward P/E is 16.4x, which is still attractive in the regional context. In terms of earnings growth and valuations, Vietnam stands out as a cheap market compared to the earnings growth potential.

VNDirect forecasts that the VN-INDEX will fluctuate in the range from 1,250- 1,350 points in August 2021. The 1,250-1,270 points would be a strong supporting level for the VNINDEX in August. So, investors could raise the proportion of stocks in their portfolios if the index drops to the supporting zone. VNDirect prefers leading companies in the Real Estate, Logistics, and Retail sectors.