Economic recovery and legal reforms to propel Vietnam's stock market

The stock market rebounded well in May and early June sessions have shown strong momentum. What is your outlook for the stock market going forward?

The cooling inflation data from the US has bolstered confidence in both global and domestic markets, with hopes of a Fed rate cut. As we move into June, macroeconomic factors, both domestically and internationally, will continue to be the main catalysts for the stock market, especially since the Q2 earnings season has not yet gained full momentum.

Domestically, positive indicators in production and consumption are reinforcing a favourable outlook for Q2 GDP growth in Vietnam. In terms of the monetary market, despite ongoing pressure on the exchange rate, the State Bank of Vietnam (SBV) has taken decisive actions to mitigate this pressure. We expect no unusual changes in policy and market interest rates.

The market's focus will be on the upcoming rate decisions from major central banks, including the Bank of Canada, the European Central Bank, the Bank of Japan, the Federal Reserve, and the Bank of England. We anticipate that the bulk of these banks will each undertake their first rate cuts in two years, while the Fed is likely to maintain current rates but adopt a more doveish stance based on recent growth, inflation, and employment data.

Additionally, the Vietnamese government has submitted proposals to the National Assembly Standing Committee for the early implementation of amendments to the Land Law, Housing Law, Real Estate Business Law, and the Law on Credit Institutions.

We expect the VN Index to trade within a range of 1,250-1,320 in June. In our base case scenario, positive macroeconomic developments could help the index maintain its momentum above recent short-term peaks. Conversely, stronger exchange rate pressures might challenge the SBV's ability to maintain current interest rate levels, negatively impacting investor expectations and market performance.

Given the anticipated favourable Q2 economic growth, we believe investors can accumulate shares of companies with gradually recovering quarterly profits or annual growth amid market fluctuations in June. Investors who have purchased shares from our preferred portfolio should hold them patiently to achieve better returns than short-term trading.

Some believe real estate stocks still face specific risks, such as legal issues or bond maturity pressures, while others think these stocks are at the bottom and present opportunities. What is your view?

If the amendments are approved in June, major bottlenecks in the real estate sector will be addressed, improving credit flow and business predictability for projects. The amendments to the Real Estate Business Law and Housing Law fundamentally revise social housing policies, expanding the scope of beneficiaries, simplifying implementation procedures, and introducing new regulations for social housing developers. The Land Law amendments focus on resolving issues related to land use fees, land allocation, leasing, compensation, and resettlement.

Given the significant market capitalisation of the real estate sector, accounting for approximately 14 per cent of the VN Index, positive trading in this sector due to these supportive factors could bolster the overall market in the coming month. The historical price-to-book (P/B) ratio valuation of sectors in the VN Index (from 2018 to present) shows that the real estate sector remains relatively attractive compared to other sectors.

What is your perspective on the banking sector?

The banking sector has a significant impact on the stock market, with the largest market capitalisation, accounting for 30-40 per cent. Since the beginning of the year, this sector has led the impressive recovery and increase of the VN Index, driven by high profit growth in Q4 2023 compared to the same period in 2022, along with a gradual reduction in non-performing loans (NPLs).

However, Q1 2024 earnings reports indicate that NPLs have not been fully addressed, which remains a primary concern for the market regarding banking stocks, leading to a slight adjustment since the Q1 financial reports were released.

In the second half of the year, as the economy continues to recover and macroeconomic indicators improve (such as exports and FDI inflows), we expect this recovery to continue, driving economic activities and credit growth towards the end of the year. The overall outlook for NPLs may also improve gradually.

However, opportunities will not be equally distributed among all banks. Investors should select bank stocks with better asset quality, as these banks can quickly address NPLs and drive development in the next phase.

Stock market holds investment potential from now until year end The stock market holds potential for investment this year in the context of the macroeconomic recovery and a rebound in manufacturing and business activities across most sectors.

Investors made aware of uneven recovery risks Experts have highlighted a promising recovery in Vietnam’s stock market and general economy, despite ongoing geopolitical and inflationary risks.