KB Securities lowers VN-Index projection on weaker earnings growth

South Korea-invested KB Securities Vietnam JSC (KBSV) has revised down its forecast for the benchmark VN-Index to 1,320 points from 1,360 in its previous report, citing lower earnings expectations.

The downward revision comes as KBSV cuts the earnings-per-share (EPS) growth projection of the VN-Index, which tracks the Ho Chi Minh Stock Exchange, to 14% from the previous 19% after lower-than-expected Q1 earnings of banks and real estate businesses, and a slow recovery of the property industry.

However, KBSV analysts noted that the projected 14% growth is still a high figure, supporting the overall trend of the local stock market.

The KBSV analysts have also cut the forward price-to-earnings (P/E) ratio of the VN-Index as of end-2024 to 15x from the previous 15.3x, reflecting a stronger impact of higher interest rates and risks related to the U.S. presidential election.

They anticipate deposit interest rates to increase by 70-100 basis points in the second half of this year, exerting a negative influence on the stock market. The interest rate hike is the consequence of the central bank’s efforts to stabilize the USD/VND exchange rate.

The forex rate is forecast to stay tense in Q3/2024 before easing in Q4 thanks to the Fed’s potential rate cut and increasing forex supply from inbound remittances and exports, they say.

They note that if Donald Trump wins the November election, the world may see the reoccurrence of trade tensions in the 2018-2019 period. In addition, his anticipated expansive fiscal policy might trigger inflationary risks. Vietnamese exports to the U.S. could be a target of punitive tariffs.

“Those factors are likely to have negative impacts on Vietnam’s stock market,” the analysts note.

In an outlook report, Hanoi-based Vietcombank Securities Co. says that the local stock market remains attractive to domestic investors as recent interest rate hikes are not appealing enough to become a competitive investment channel.

If interest rates increase moderately and remain low amid insignificant credit growth, the VN-Index may head to the 1,300 threshold and even conquer 1,320-1,350 points, predict VCBS analysts.

The VN-Index closed Thursday up 0.21% at 1,288.58 points.

KBSV analysts recommend investors pay attention to the maritime transport and public investment sectors. They also have positive perspectives for the stocks of oil & gas, real estate, banking, retail sales, seaport & maritime transport, industrial park, and steel companies.

Meanwhile, their VCBS peers suggest investing in shares of companies active in the export, public investment, and utility sectors.