VN-Index is standing alone the crossroads

The VN-Index closed at 451.39 points on September 10, correcting from recent highs of 469.25 points on September 6 after rallying 11 per cent from its low of 421.30 points on August 25.

Could a market correction be on the cards? The next few months will provide the answer

Duong Hong Ha, chief analyst with Tri Viet Securities Company (TVSC), said that there were two scenarios for the domestic equities market. The first is for the market to correct for a while, then become bullish with money moving between stocks that have seen sharp drops in price recently.

“The second scenario is that  the VN-Index has topped out and the bear will return,” said Ha, adding that if the 450 point level was broken again, the market would test the 420-430 point range again.

While which scenario would be played out was unclear, investors should look to news such as how the central bank’s Circular 13 on safety ratios, effective from October 1, would be revised or how state-owned group Vinashin’s debt solving plan would work, added Ha.

Analysts with Au Viet Securities (AVS) added that the market had topped out or just corrected. With the strong trading volumes, AVS believed the market was moving positively, particularly the increasing demand for blue-chips.

The correction would be opportunities for investors to cash in. Stocks with strong fundamentals and reasonable price to earnings ratios (P/E) will be among best choice, said AVS analysts.

Tran Thi Yen, senior analyst with Bao Viet Securities (BVS), said that in terms of domestic macro-economic conditions, slow-down in credit growth in August, 2010 (2.1 per cent in August compared to 2.91 per cent in June and 2.45 per cent in July) might cause further cash flow concerns in the economy.

“The current high interest rate levels and caution among banks about Circular 13 are the two main causes to the lowering credit growth.

“BVS believes that Circular 13’s adjustments will be the important stimulation for credit growth in the last months of the year. Otherwise, the 25 per cent credit growth target this year will be difficult to achieve when it is hard for the interest rate level to decline further,” said Yen.

Therefore, she added, without breakthrough news releases, market movements would remain largely dependent on investor sentiment.

Fiarchra MacCana, Ho Chi Minh City Securities Corporation’s (HSC) head of research, said although it seemed that the market’s undertone was still firm, sentiment was still fragile and could quickly change with any major announcement.

“Technically speaking, both indexes are at important levels and the coming days could therefore prove to be very important for the direction of the markets over the coming weeks,” said MacCana.