The value of Vietnam’s market is expected to reach a favourable level despite the fact that the VN-Index is still in a downturn, causing a significant sell-off by investors.
According to the Petroleum Securities Company, Vietnam’s stock market has been in a downtrend since June 15 when it fell more than 20 per cent from its all-time high and around 19 per cent since the start of 2022.
The VN-Index has also continuously broken important support levels, notably the highly-expected support test area of 1,200 points. This left investors unable to understand the cause, with some in a state of panic when the stock reached the lowest point last week and plummeted steeply again this week.
At a talk show named “Taking action in the eye of the storm” held by VIR on June 23, Ngo The Hien, analyst director of Hanoi Securities Company explained the sharp decline was based on three factors.
“The market is impacted by negative signs, particularly news that US inflation is reaching peaks, which prompted the Federal Reserve to increase interest rates by 0.75 percentage points, thus producing market volatility in the global and domestic market,” Hien said. “Secondly, the market encountered multiple unfavourable news when it was expected to surpass the 1,300-point mark.”
The third factor is that the number of investors who have participated in the market over the past two years is substantial. They are mostly individual investors, resulting in mental distress and a wave of stock selling regardless of fundamentals or economic prospects.
Regarding valuation, Hien commented that the current P/E ratio is low because the P/E index of the whole market on June 22 was around 13 times, while the average P/E for the previous five years was around 16.5 times, and for the last 10 years was 15 times.
Various organisations have predicted that the country’s GDP will expand by 6 per cent in 2022. It is anticipated that corporate earnings will climb by 15 per cent. In the first quarter, total profits of listed companies increased by 30 per cent.
“The future P/E will be around 11.7 if business growth expectations reach 15 per cent. In comparison to other markets with a forward P/E ratio of around 15-16 times, Vietnam’s P/E ratio of 11.7 times is relatively low and appealing,” Hien said.
In addition, he mentioned defensive stocks such as energy and water are less impacted by inflation and can recover post-pandemic. Recent growth for these equities has been fairly robust. “We need to avoid following purchasing trends without considering the essence of businesses and their market price, otherwise, investors may lose even if they invest in defensive stocks,” Hien explained.
Nguyen Hoai Phuong, investment director and executive of the Vietnam Market Access Equity Fund, revealed that investors can disburse reasonably-priced stocks.
“We focus on disbursing a major share of its funds into a range of advantageous industries, particularly those associated with foreign investment and exports because the profit picture of these businesses is more robust and easier to manage,” Phuong said.
The first group of such advantageous industries is industrial real estate, Phuong added. Despite the world’s instability, the need to relocate manufacturing will persist. Another group that investors should consider is exports. Due to the effects of the Russia-Ukraine conflict, global supply is highly restricted and textiles and seafood firms that can effectively manage natural resources will continue to perform well this year. In addition, Phuong said, the logistics and warehousing industry will benefit from Vietnam’s trend of increasing public investment and infrastructure development.