Market Strategy March 2023 – Stay defensive, stay selective

VN-INDEX closed at 1,054.28 pts (-5.1% mtd, +4.7% ytd) in Feb-23. We believe that the correction of the market can come from the following reasons (1) Rising concerns about the extension of Fed rate hike following the US inflation was higher than consensus in Jan-23 and (2) The news that some real estate companies are late to pay interest and principal on bonds raises concerns about the risk of default. Average trading value of three bourses fall 2.2% mom (-57.0% yoy) to VND11,857bn. Foreign investors net bought dropped sharply 70.5% in Feb-23 to VND1,237bn.

The market will remain under pressure from the Fed’s rate hike. Higher-than-consensus Inflation in the US in January 2023 and lower risk of a mild recession could lead the FED to raise interest rates more aggressively than market previously expected.

We expect the deposit rate to peak out in 1Q23 and then cool down since 2Q23, based on the following arguments: (1) FED’s policy rates will peak out in 2Q23, which will ease the pressure on Vietnam’s exchange rate and interest rates, (2) SBV will be more proactive in supporting market liquidity through open market channel or buying foreign exchange reserves and (3) weak lending demand due to economic slowdown and murky residential property market. However, the decrease will not be strong as it may put pressure on the exchange rate. We lower our forecast that the average 12-month deposit rate will drop to 7.5%/year by the end of 2023, lower than the previous forecast of 8.0-8.5%/year and the current level of 7.8%/year.

Pay special attention to the impact of Fed’s meeting in Mar: Particularly noteworthy factors in Mar include (1) the Fed’s policy meeting on Mar 20-21, (2) movements in the US government bond yields and the dollar index (DXY) and (3) transactions of foreign investors, especially restructuring activities of VNM ETF and FTSE ETF in mid-March.

Stay defensive, stay selective. In the context of not much supportive macro information and policies and increasing external risks, VN-INDEX will be under downward pressure in Mar 2023. The nearest support zone of VN-INDEX is around 1,000 pts and the strong support zone of the market is around 950pts. Due to short-term correction trend, investors should prioritize portfolio risk management and actively lower the proportion of margin and stocks. Upside catalysts include the government issuing policies to support the real estate market (revising Decree 65, debt relief, credit package for social housing, etc.). Downside catalysts include the Fed’s more hawkish stance on monetary policy, information regarding corporate bond defaults.

Market strategy. There are selective opportunities related to themes about public investment disbursement, China’s reopening and profit growth of specific industries and businesses.

Please follow this link for the full report