Markets tense up for prolonged uncertainty

Stock exchanges have not seen troubles as deep since the Great Depression

Exchange-traded funds (ETFs) rebalancings last week triggered large sell baskets that knocked heavy-weight stocks of giant Vingroup down at closing.

Rebalancings in the Vaneck Vectors Vietnam ETF Fund (VNM ETF) and FTSE ETFs knocked blue-chip stocks of the VN30 Index down by 0.5 per cent at the closing session of March 20, while the heavier weightings of Vingroup-related stocks led to a 1.2 per cent drop for the VN-Index and forced the broader market index to close at the low of the day.

The VN-Index dropped 2.23 per cent to close at 709.7 points, while the Hanoi Stock Exchange (HNX) slightly gained 0.79 per cent to 101.7 points thanks to the surge of local banks SHB and ACB.

Textile makers, including TNG Investment and Trading (TNG), Thanh Cong Textile Garment Investment Trading (TCM), and Saigon Garmex Manufacturing Trade (GMC), fell sharply by 6.7, 6.3, and 3.5 per cent, respectively. This is the result of the Vietnam Textile and Apparel Association’s fresh data showing a steep drop in orders to the US and EU, amid news that these regions will suspend imports due to COVID-19.

The foreign selling spree focused on Hoa Phat Group (HPG), Vietcombank (VCB), and Masan Group (MSN) while, overall, foreigners continued their selloff trend with a net value of VND916 billion ($39.83 million) on the Ho Chi Minh City Stock Exchange (HSX).

Fears of the pandemic crimping corporate profits and diminishing the allure of risky assets have kept major local indexes under pressure for much of the past couple of months.

The decline underscores the level of anxiety among investors since the coronavirus pandemic escalated and disrupted supply chains, battered tourism, sidelined workers, and infected thousands of people.

Earlier this month, Finland-originated PYN Elite Fund was no longer a major shareholder of DIC Investment and Trading JSC since its ownership was reduced to 2.04 per cent. Previously, the fund also slashed its holdings in Tasco JSC to 9.83 per cent.

Petri Deryng, director of PYN Elite, said that the fund has sold a number of long-term stocks. Notwithstanding, PYN Elite appeared to have taken a more optimistic view of purchasing more shares down the road in case of favourable conditions and attractive valuation.

VinaCapital and its subsidiary Vietnam Investment Ltd. also reduced their ownership in Southern Basic Chemicals JSC.

Aquila SPC – a member of Dragon Capital – divested 226,000 shares in Construction Investment and Development JSC, while VNM ETF also followed suit by trimming Vietnamese stocks in its portfolios.

Accordingly, all Vietnamese stocks in the portfolio were sold off, including PetroVietnam Power, Vietjet, Bao Viet Holdings, Vinamilk, Novaland, FLC Faros, and Techcombank.

Despite the pessimism permeating the markets, some investors are continuing to scout out buying opportunities.

“A slew of stocks have attracted my attention, including bank stocks,” Deryng of PYN told VIR.

However, the uncertainty over the length of the COVID-19 outbreak continues to push more investors to stay on the sidelines or trim their positions instead of using pullbacks as buying opportunities.

“For those who are fully invested, given our views and the size of market decline we have already seen, staying invested is probably the best decision,” researchers at Standard Chartered noted to VIR.

“Typically, markets fall around 25 per cent during recessions. We have already seen the decline exceeding this, and our central scenario is for the economy to ultimately recover strongly from weaknesses in the first half. For those who are among the many who have been reluctant to embrace the bull market, this is probably a good time to be adding to equity investments.”

Equity markets have been decimated by the pandemic as frightened investors pull their money out of economically vulnerable corners, but market participants in Vietnam remained less aggressive, cited experts at VinaCapital.