VN-Index may rise 26% this year if upgraded in September: Maybank Securities

The benchmark VN-Index may reach 1,420 points, gaining 26% from the end of 2023, if Vietnam is upgraded from a “frontier” to an “emerging” market in September, according to Maybank Securities Vietnam (MSVN).

This is one of two scenarios for the Vietnamese stock market offered by MSVN in its 2024 strategy report, based on the recovery of the economy, loosening monetary policy, and the prospect of upgrading the market.

In the base scenario, MSVN forecasts that the VN-Index, which represents the Ho Chi Minh Stock Exchange (HoSE), could reach 1,250 points, up 11% from late 2023, mainly driven by the prospect of earnings growth.

In both scenarios, MSVN forecasts that the market will exeprience significant fluctuations in the first half of 2024 due to divergent views on the speed of recovery and risks from the banking and real estate sectors. The market is expected to accelerate in the second half, buoyed by confidence in a stronger recovery.

The brokerage firm believes that the Vietnamese economy will recover steadily throughout 2024, driven by a recovery in consumption thanks to strong export growth, a more stable household financial situation, and the gradual revival of the property market.

While government spending (up 44% in the first nine months of 2023) was the main driver of the economy in 2023, MSVN expects domestic consumption to return as the main driver in 2024. Besides, the real estate market will gradually recover while the upcoming wave of share issuances (if successful) will be a boost for this industry.

Corporate earnings could increase by nearly 20% this year, after decreasing by 3.4% in 2023. Thanks to a low base and a more stable economic recovery, the retail, steel, and IT industries and the bank will lead the way, it says.

“The next driving force is good stock market liquidity thanks to the State Bank of Vietnam's (SBV) loose monetary policy and an upgrade of Vietnam's stock market from “frontier” to “emerging” by FTSE Russell, a subsidiary of the London Stock Exchange Group (LSEG), thus boosting the price hike,” states the broker.

According to MSVN, the State Securities Commission is in the final stages of eliminating the "pre-funding" requirement for foreign institutional investors, which is the main barrier hindering Vietnam from being upgraded by FTSE Russell.

Vietnam has been included on the FTSE watch list for upgrading to a secondary emerging market since 2018. The country has met both quantitative criteria but not yet satisfied one of the nine qualitative criteria. By requiring pre-funding of 100% to prevent buyers and sellers from defaulting, Vietnam can ensure that all transactions are made.

However, this limits investors' ability to rotate capital flows, it notes. “Removing the pre-funding requirement will increase flexibility for investors but is also likely to lead to unsuccessful trades, a factor FTSE Russell will consider in assessing the credibility of Vietnam’s stock trading system before deciding to upgrade the market,” it says.

MSVN forecasts that Vietnam's pre-funding requirement will be eliminated in the first quarter. FTSE Russell will take six months to one year to collect data on unsuccessful transactions. In the most favorable case, Vietnam will be officially upgraded in the review period of September 2024 or March 2025. The implementation process will then take from six months to two years to fully integrate qualifying Vietnamese stocks into FTSE's emerging market-related indices.

Regarding monetary policy, MSVN expects the SBV to maintain loose monetary policy since foreign exchange rate pressure eases and inflation remains under control. The USD will weaken in 2024 as the U.S. Federal Reserve’s (Fed) monetary policy tightening cycle seems to have ended.

The VND could appreciate by 1.7% against the USD this year and another 0.8% in 2025. In the long term, Vietnam's stable positive current account balance will be the main driving force for the strengthening of the currency.

MSVN believes that inflation is not the main risk for Vietnam this year. Vietnam's average inflation is forecast at about 3.5% in 2024, slightly higher than 3.25% in 2023 but lower than the government's ceiling of 4.0-4.5%.

The VN-Index closed Monday at 1,175.69 points, with over 666 million shares changing hands for nearly VND14.3 trillion ($582.48 million).