Oversold stocks pave opportunities for medium- and long-term investors

The eruption is forecast to negatively impact all stock exchanges in the short-term

The VN-Index will see steadily improving prospects, leaving its current slump then climbing to 925 points and reaching more than 950 points by the end of February, according to BIDV Securities Company’s (BSC) latest report amidst the coronavirus outbreak.

BSC stated that past epidemics had remarkable effects on the economies. The novel coronavirus epidemic is also forecast to negatively impact all stock exchanges in the short term, specifically in the first three months, then rebound later on.

During the 13 epidemics since 1980, the MSCI World Index recovered about 0.4 per cent after one month, 3.08 per cent after three months, and 8.5 per cent after six months.

As a result, while infections are a definite immediate risk for the securities markets, they also pose opportunities for the coming months. Much like most securities markets, BSC assessed that the damage will be greatest for the aviation, oil and gas, and sectors that export a great deal to China, while healthcare, energy, necessities, and telecommunications will benefit.

As the local market has been on a general dip, oversold stocks are becoming more appealing to investors. After two sessions of sharp fall at the end of January, the VN-Index’s price-earnings (P/E) and price-to-book (P/B) ratios lowered to 14.9 and 2.8, respectively, equaling the same rates on January 14.

Meanwhile, HNX-Index’s P/E and P/B were 7.29 and 0.9, respectively, lower than the rates of 8.4 and 0.96 on January 14. Accordingly, a huge drop in stock prices and a rise in profit have contributed to the slump of the indexes.

The hike in the after-tax profits of companies listed on the HSX and HNX has been improving. Specifically, the growth rates in the latest first, second, and third quarter were 1, 10, and 13 per cent on-year, and it is expected to hit 15 per cent in the fourth quarter. Currently, the firms have been preparing the fourth-quarter financial reports and the whole 2019 reports.

The VN-Index’s P/E and P/B rates are relatively low compared to the past four years. Financial organisations also estimated that the growth rate in the average profit in the securities market will be 10-15 per cent in 2020. Consequently, BSC said now is the right time to stock up on oversold stocks.

The oversold stocks are mainly in the aviation and oil and gas sectors, due to the impact of the coronavirus. They include Vietjet (VJC), Vietnam Airlines (HVN), Petrovietnam Transportation Corporation (PVT).

The health crisis in China is the main reason behind these stocks dropping below their true value, an effect which is forecast to be only temporary – most expectations place the timeline of rebound to three-six months. Thus, investors are advised to go on the offensive while the window of opportunity is open.