Market slump means bargain share prices

The domestic market experienced a sharp plunge last week with the VN-Index losing an additional 6 per cent and HNX-Index down 8 per cent, after witnessing a hefty 9.8 per cent and 6.1 per cent fall, respectively, in the previous week.

The 450 point support level, which the VN-Index traded at for two months, was breached, causing the index to tumble to a 24-month low at 410.82 points on May 27. The HNX-Index also fell to its all-time low to 70.83 points.

The market was abuzz with talk that brokerage houses had been stricter with clients who did not meet the margin calls as banks began to cut back on loans for securities investing, with banks’ June 30th deadline to lower their loans to non-production sectors weighing on investors’ minds.

Marc Djandji, director of Viet Capital Securities’ (VCSC) Research Department, said the widespread pessimism had darkened the market’s mood, but provided a good entry point for new investors. On a peer valuation basis, with an average price to earnings (P/E) ratio of around 8.4 on the VN-Index and 6.4 on the HNX-Index, Vietnamese equities are trading at a  40-60 per cent discounted rate compared to their regional emerging market peers.

Dividend yields in Vietnam are 50-100 per cent higher than that of their peers in other emerging markets. On a historical valuation basis, Vietnamese equities are cheaper than they were when the markets bottomed out in February 2009 and were trading at 10.5 P/E, according to VCSC statistics.

“At current levels, these valuation metrics should provide investors with an increasingly comfortable margin of safety for investing in Vietnam,” said Djandji.

Djandji added that on an operational basis, current market conditions should provide buying opportunities for medium and longer-term investors to build positions in coveted stocks. “Investors intent on building sizeable positions in Vietnamese equities should take advantage of the current market sentiment to accumulate stocks cheaply without worrying about chasing up prices,” he said.

Bao Viet Securities technical analyst Pham Van Khoa said the market was oversold and investors could cash in at around 380 points on the VN-Index.

Nguyen Hoai Nam, Sacombank Securities analyst, said: “We are positive about the medium to long-run as the stock prices have fallen to record lows, while macro conditions are expected to be improving after second quarter.”

In a related development, a close source to Mekong Securities revealed that the selling pressures from margin calls were coming from some VIP trading accounts and the margin calls would soon be exhausted.