Market Strategy August 2022 – A soft recovery is underway

VN-INDEX successfully broke the milestone 1,200 level. VN-INDEX started to bottom out from the lowest level 1,149.6 since July 6 and then closed the month at 1,206.3pts (+0.7% mtd, -19.5% ytd). Market sentiment has improved following the rally of US stock market and constructive economy growth of Vietnam.

Average trading value of three bourses decreased 24.1% mom (-45.7% yoy) to VND13,444bn (HOSE: VND11,452bn/trading day, -22.0% mom; HNX: VND1,251bn/trading day, -30.4% mom; UPCOM: VND741bn/trading day, -39.5% mom). Notably, foreign investors change their position from net buyers to net seller with outflow of VND2,138bn in July.

Market earnings growth decelerated in 2Q22. As at 29 Jul 2022, 778 listed companies, representing 45.1% of the total listed stocks and 55.9% of market capitalisation, have released 2Q22 results. At this point of time, aggregate revenue and earnings of listed companies that have been reporting results grew positively 9.4% yoy and 16.9% yoy in 2Q22, respectively. For 1H22, net profit of listed companies on three bourses rose 26.0% yoy (1H22 NP growth was calculated on companies which had released 2Q22 business results).

The best is yet to come, the worst seems to be over. As for the timing, the external situation has improved, with market expectations on Fed rate hikes having passed its peak. While global macro is not completely out of the woods, we may see incremental optimism for the Vietnam equity market which will be supported by (1) global inflation likely to cool down, (2) The Fed reduces the intensity of monetary tightening policy, (3) SBV signal its plan to increase commercial banks’ credit growth quota, (4) Decree 153 to be issued which loosen some requirements relating to corporate bonds issuance than previous drafts.

We expect the VN-INDEX fluctuate within the narrow range of 1,180-1,260 points in Aug 2022. The market liquidity would remain low. Therefore, investors should maintain a moderate proportion of stocks and limit the use of leverage (margin) at the moment to minimize risks. Our high-conviction stocks for August include: BCG, DXG, KBC, PNJ, SZC and VTP. Downside risks to the market include: (1) higher-than-expected inflation due to increasing food prices, (2) the US dollar continues to be strengthen, putting more pressure on Vietnam’s exchange rates, interest rates and foreign investment.

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