Diminishing market to offer big opportunities

Investors are being urged to play with a measured hand

The domestic stock markets continue plunging to new lows throwing up many undervalued stocks.

The VN-Index last week free fell to 429.14 points on August 28, a 6 per cent drop against the previous week’s 454.84 points, the lowest level since December last year, as investors dumped stocks.

During the year to date, the VN-Index has plunged 15 per cent, but is down 22 per cent against its recent peak of 548.01 points on May 6 last year and 32 per cent lower against 624.10 points on October 22, 2009. 

Market analysts said the current market correction was being driven by continued fears of oversupply coupled with speculative stocks falling through the floor.

“We think that the current market is suitable for long-term investors as valuations are very attractive,” Vietcombank Securities analysts said in a statement, adding that medium and longer-term players could buy cautiously, while short term players should hold off.   

Bao Viet Securities (BVS) analysts, however, said the market was being affected by considerable negative elements, including additional listed shares and limited cash due to the lack of supportive macro-economic policies. Besides, pessimistic sentiment among investors and sell-offs for mortgage redemption of securities companies also drove the indexes down.

 “Therefore, given the volatility of the VN-Index, we recommend short-term investors keep a watch and restrict transactions for the time being. Medium and long-term investors are also recommended not to increase their stock exposure,” said BVS market strategist Nguyen Van Thi.

Vietnam equity market’s price-to-earnings (P/E) is just around 9, according to BVS statistics.

Fiachra MacCana, Ho Chi Minh City Securities Corporation’s head of research, said that as hundreds of stocks jointly fell across the board during the past few weeks, several blue chips such as FPT, MSN, VNM and HAG had held up well.

“This goes to show us that [stock] quality and fundamentals are still being rewarded by superior performances in this market,” he said.

MacCana said when the market plunged sharply, numerous stocks including EIB and PVD had fallen to very low, but attractive levels. EIB is rare amongst banks in being well capitalised and the stock’s recent selling pressure has mainly come from other banks looking to sell its shares to raise cash.

“We have buys on both stocks and regard them as excellent companies with good medium-term prospects. Therefore, longer-term oriented players might look to pick gradually over the coming weeks or at least keep them on a watch list,” said MacCana.

Au Viet Securities  analysts added that for long-term investors, medium cap stocks with potential growth from core business, high dividends and low valuations against book values should be closely watched.