Market Strategy January 2023 – To start with a clean slate

VN-INDEX closed the year at 1,007.1 pts (-3.9% mtd, -32.8% ytd). We believe that the correction of the market can come from the following reasons: (1) investors took profits on the background that VN-Index had increased by nearly 20% from the bottom between mid Nov-22 and early Dec-22; (2) Investors tend to withdraw from the market in the week leading up to New Year’s Eve; and (3) Investor sentiment was affected by negative macro information about exports and PMI data. Average trading value of three bourses was about VND16,252bn (US$697m), +27.2% mom but -24.1% yoy. Foreign capital continued to strongly return to Vietnam’s stock market in Dec-22 with net bought value of VND13,346bn (accounted for 46% total foreign net bought in 2022).

Fed slows rate hikes, but tightening cycle is unlikely to end anytime soon. In 14 Dec 2022, FED has raised it fund rates by 50 basis points, lower than the 75 basic points seen in previous hike and reminded markets that the battle against inflation will continue into 2023. We expect two more Fed rate hikes with a total increase of 50 basis points in the first quarter of 2023. We do not expect any rate cuts in 2023 unless the U.S. economy enters recession after all. With no-recession in forecast, we expect the Fed only implements a first gentle 25bps cut in 1Q24.

Domestic interest rate hike slows down. At least 12 commercial banks, notably Vietcombank and Agribank, announced to reduce lending interest rates to support businesses, following the call of the SBV. The interest rate reduction is from 0.5%/year to 3.5%/year for loans in VND and for some existing corporate and individual customers. The SBV noted that banks with sufficient liquidity and relatively low lending interest rates will be granted higher credit quotas than others. For deposit rate, the Banking Association has urged banks to reduce the 12-month deposit interest rate to a maximum of 9.5%/year. After the call, some banks have reduced their 12-month deposit interest rates from over 10%/year to below 9.5%.

Keep a cautious mentality before the Lunar New Year holiday. We expect the VN-INDEX to fluctuate in the range of 1,000-1,100 points in Jan. Market liquidity remains weak ahead of Lunar New Year. Therefore, investors should be cautious before the upcoming holiday. Investors should limit the use of leverage (margin) at the moment to minimize risks.

New year, new fortune. We think market liquidity remains weak ahead of Lunar New Year. Therefore, the market’s recovery might be fragile and volatile. Thus, we recommend investors to prioritize investing in undervalued stocks and dividend plays. In addition, investors should put on a watch list of stocks that benefit from the story of public investment and the reopening of China.

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