Will Vietnam's stock market bottom out in 2Q22?

The downward trend of Vietnam’s stock market continued in April. 

The VN-Index showed a slight downward trend in the first quarter of 2022 due to unfavorable external factors (the FED's move to raise its benchmark federal funds rate for the first time since 2018, Russia-Ukraine geopolitical tensions) combined with domestic factors (the Thu Thiem land auction scandal and elevated domestic inflation pressures). Over the past quarter, the VN-Index edged down by -0.4%, in contrast to the 1.6x increase in the average daily trading value over the same period.

The downward trend of Vietnam’s stock market continued in April. Therefore, the VN-Index dropped to 1,260 points before recovering to 1,355 points at the end of this month.

Although the trading value increased QoQ significantly, the cash flow targeted some sectors in the wake of the general market's moving sideways with a substantial divergence. It was contrary to an overall upward trend in the 2020– 2021 period in which sectors like construction materials, chemicals, and fisheries attracted the highest cash flow thanks to surging commodity prices amid recovering demand and Russia-Ukraine tensions.

Mr. Tran Duc Anh, Head of Macro and Strategy at KB Securities, said the stock market’s cash flow may decrease marginally from the high levels in late 2021 and early 2022 due to capital withdrawal for production and business activities after lockdowns. However, it is less likely to fall sharply in 2Q22 and is expected to be higher YoY given the low policy rate despite possible modest increases, combined with the attraction of the stock market compared to other investment channels (gold, USD, real estate).

The VN-Index has moved sideways since early 2022, with the index’s P/E staying around 17x as of March 31. Though it is higher than the last two years' average at 16.2x, it is equivalent to the early-2022 level and the average P/E of other regional markets. Mr. Tran Duc Anh said. "We believe a P/E of 17x is reasonable considering risk factors (the Fed’s rate hikes, the Russia-Ukraine conflict, rising inflation, policy rate increases) and positive macroeconomic factors (economic rebound, strong earnings growth of listed companies, economic stimulus packages)."

The VN-Index dropped to 1,260 points before recovering to 1,355 points at the end of April.

Compared to others in the region, Vietnam's stock market maintains its attraction in the correlation between P/B and ROE and P/E and average EPS growth during the last three years.

Mr. Tran Duc Anh said KB Securities lowered its forecast for the end-2022 average EPS growth of HSX-listed companies to 15.1% (from 15.7% in the 2022 strategy report) given rising macro risks.

Besides, this stock company revised the VN-Index's end-2022 forward P/E from 17.5x in the 2022 strategy report to 16.5x due to growing concerns about policy rate increases, surging inflation, and global stock market fluctuations. "We believe the target P/E of 16.5x is reasonable in the wake of post-pandemic economic rebounds, stimulus packages, supportive monetary policy, and enhanced financial health of listed businesses. Therefore, the VN-Index's target by the end of 2022 should be towards 1,680 vs. 1,760 points as previously forecast (upside 12.7% from the 1,490-range on March 31, 2022)", Mr. Tran Duc Anh forecasted.

In 2Q22, potential risk factors seem to dominate, namely inflation, policy rate increases, the Russia-Ukraine conflict, and the Fed's rate hikes at its May and June meetings, while the influence of supporting factors appears mild. As a result, the VN-Index will likely move sideways with alternating ups/downs as favorable conditions and risks gradually emerge. The market's corrections in the second quarter could be great opportunities for investors to increase stock volume and expect rebounds in 2H22. "Our top picks are stocks in sectors benefiting from positive macro factors and companies with high earnings growth," Mr. Tran Duc Anh said.