Increasing domestic capital flow is likely to push Vietnam’s benchmark VN-Index towards the resistance territory of 1,200-1,220 points in February, according to VNDirect Securities.
The VN-Index, which represents the Ho Chi Minh Stock Exchange (HoSE), was off to a good start in 2024 with an increase of 4.1% in January, ranking second in Asia behind Japan's Nikkei 225 (+6.8%).
In the five trading sessions leading up to the Lunar New Year holiday (Tet), the index pushed ahead impressively, reaching 1,198.53 points at the close on February 7 (the last trading day before Tet).
The early-year performance can be attributed to positive signals from the macroeconomic situation at home and aboard, the brokerage firm says.
Globally, the U.S. economic outlook improved with its consumer price index (CPI) in December 2023 increasing by 3.4% year-on-year and the world largest economy’s purchasing managers’ index (PMI) reached a seven-month high in January 2024.
Domestically, Vietnam's GDP recovered significantly with a year-on-year expansion of 5.05% in 2023, for an annual GDP per capita of $4,284.
Vietnam's credit growth also accelerated in the last months of the year, ending 2023 up 13.7% compared to 2022.
The State Bank of Vietnam has set a credit growth target of 15% for 2024 and allocated quotas to credit institutions right at the beginning of the year. In addition, the National Assembly passed the revised Land Law and the revised Law on Credit Institutions.
Banking stocks made the biggest gain of 11.1% with a series of positive information including the recovery of business results in Q4/2023 and the passage of the amended Law on Credit Institutions.
The transport group also witnessed impressive growth of 6.4% as investors expected businesses to benefit from the trend of rising freight rates due to Red Sea tensions.
The telecommunications industry also outperformed the VN-Index with a rise of 5.2%, mainly supported by FPT Corporation's positive business results.
The stock market’s liquidity improved in January thanks to positive domestic macro information. The average trading value on the three exchanges climbed 5.4% over the previous month and 71.4% over the same period in 2022 to VND19.15 trillion ($784 million) per session.
Of this, the figure on the HoSE reached VND17 trillion ($696 million) per session, an increase of 7.8% month-on-month; HNX VND1.4 trillion ($57.32 million), down 22.8%; and UPCoM VND737 billion ($30.2 million), up 30.4%.
Notably, foreign investors net sold stocks for VND320 billion ($13.1 million) last month, a sharp decrease compared to December 2023 with VND10.1 trillion ($413.5 million).
This reflects the expectations of foreign investors in the Vietnamese stock market in the new year, the report says.
Stock channel to remain a magnet
Stocks are set to continue being an attractive investment channel as bank deposit interest rates remain low. As of January 31, 2024, the average 12-month deposit interest rate listed by state-owned banks dropped to 4.77% per year, down 0.17 percentage points from December 2023. The average interest at private banks decreased by 0.15 percentage points month-on-month to 4.79% per year, with 12-month deposit rates in the 4.6-5.2% range.
VNDirect believes that there is not much room left to further reduce deposit interest rates in the context of recovering loan demand, leading to increasing capital mobilization by commercial banks. However, it forecasts that the average 12-month deposit interest rate will continue to remain low at about 4.5-5% in 2024.
The average earnings-to-price (E/P) ratio of the VN-Index in January reached about 7%, down from December, mainly due to last month’s stock market gains. Meanwhile, the average 12-month deposit interest rates at commercial banks continued to fall. In general, the gap between the stock market's E/P and deposit interest rates remains high.
“Amid a high gap between the stock market’s E/P and deposit interest rates and the positive profit growth prospects of listed companies in 2024, we expect that domestic capital will continue to flow to the stock channel in the near future," the VNDirect report says.
The broker believes that the market is aiming for a base scenario of reaching 1,350 points by the end of 2024 (based on the P/E of 14.3x and EPS (earnings per share) growth of 16-18%).
Market liquidity may improve in the second half of February, when individual investors gradually return to the stock market after the Lunar New Year holiday, the report says. The VN-Index may enter a resistance territory of 1,200-1,220 points within the month.
VNDirect Securities advises investors to pay attention to stock groups like banking, seaport and shipping, and consumer goods and retail.