Vietnam stock market reaches 'fairly attractive' valuation territory: analyst

As interest rates bottom out and profits among listed companies start to make a recovery, buying and holding stocks for long-term investment is a worthwhile choice, said Dinh Quang Hinh, director of market strategy at VNDirect Securities Corporation’s analysis department.

What were the highlights of the Vietnamese stock market in the past trading week?

From October 16-20, negative sentiment covered the market as the VND/USD exchange rate hit a record high for this year, with the U.S. government bond coupon rate approaching 5%, the highest in 18 months.

This development triggered massive sell-offs, causing stock groups to simultaneously plunge. The domino effect of forced selling extended the decline in the following sessions. At its peak, the VN-Index, representing the Ho Chi Minh Stock Exchange (HoSE), fell sharply to below the Moving Average 200 (MA200) on Wednesday.

Among the groups, real estate, securities and retail recorded the strongest falls. On Friday afternoon, bottom-fishing demand appeared at the 1,080-point territory, pulling the index back 32 points. In particular, many stocks in the securities and real estate groups rose to their ceiling prices.

The VN-Index decreased 46.7 points, or 4%, from the previous week to 1,108.03. The HNX-Index on the Hanoi Stock Exchange (HNX) lost 4.4% to 228.5 points, and UPCoM-Index on the Unlisted Public Companies Market (UPCoM) dropped 2.6% to 85.6 points.

VIC of private conglomerate fell 6%, VHM of real estate developer Vinhomes 5.1%, BID of BIDV bank 4.7%, and VCB of Vietcombank, all together taking 10.5 points off the VN-Index. On the contrary, VJC of low-cost carrier Vietjet was up 1.4%, LPB of LPBank (+2.5%) and EIB of Eximbank (+1.4%), helping restrain the market's sell-off momentum.

Fearful sentiment kept liquidity low. The trading value on the three exchanges only recovered slightly during the week, reaching an average of VND18.5 trillion ($753.87 million) per session, up 12.5% from the previous week.

Foreign investors turned net buyers on all the three exchanges, with a total value of VND908 billion ($37 million), including VND779 billion ($31.74 million) on the HoSE, VND117 billion ($4.77 million) on the HNX and VND12 billion ($489,000) on the UPCoM.

What forecasts and advice do you have for investors in the next trading week?

Contrary to expectations that the recovery momentum could be maintained for the second consecutive week, the Vietnamese stock market recorded four strong correction sessions in the past week and only partially recovered at the week-end session. Strong selling caught investors off guard and negatively affected market sentiment.

This might be due to proactive margin lowering or forced selling by some lenders. Therefore, it is necessary to further observe the impact of this development on the market in the coming sessions.

The positive point at the end of the week was information supporting the exchange rate. In a recent speech on monetary policy, U.S. Federal Reserve Chairman Jerome Powell signaled that the Fed may continue to stop raising interest rates at its upcoming meeting in early November. This may slow the recent sharp increase in U.S. G-bond yields.

In addition, VPBank’s completion of a private placement share issuance worth $1.5 billion to Japanese investor Sumitomo Mitsui Banking Corporation (SMBC) will be a supplementation to foreign currency supply. The continuous net buying by foreign investors during the down sessions last week was also of notable support to the market.

Regarding investment strategy, long-term investors can consider gradually buying stocks during corrections because the market has reached a fairly attractive valuation territory to buy and hold. As interest rates hit their bottoms and the profits of listed companies start a recovery cycle, buying and holding stocks for long-term investment is a worthwhile choice.

Meanwhile, short-term investors should maintain their discipline and only join the market when the VN-Index successfully confirms its second bottom in order to minimize risks and increase the probability of success.

The MA200 is a 200-period moving average said to be the strongest support and resistance. If a stock is trading below its MA-200, this moving average will act as strong resistance for the stock. If the stock breaks it with good volume, more upside movement is expected.