The US stock market has continually been increasing to reach new heights. Three indexes, namely, S&P 500, Nasdaq 100 and Dow Jones have increased sharply.
Dow Jones in particular reached a peak of 28,348.36 points in early December. Other international stock indexes have also risen significantly, such as Nikkei 225 (Japan) reached 24,000 points and SENSEX (India) dramatically gained a historical peak of 41,423 points.
In contrast to a positive upward movement in the world stock market, any changes in the VN Index have come as a big disappointment for most investors, because this index is expected to decline sharply to below 960 points in the remaining part of the year. The reason for such an opposite trend in the Vietnam stock market compared to the world market is being seriously questioned. In addition, it is also a concern if this situation continues to prevail in the first half of 2020. Investors now need to pay attention on how to deal with abnormal cases that suddenly occur in the stock market.
Surpassing 1,000-point mark
Continuous correction of the VN Index not only makes investors pessimistic about market prospects for the future, but dampens their faith in the Vietnam stock market as well. However, in view of the overall market, investors should currently keep calm in recognizing and assessing the stock market trends. During the 2017 term and early 2018, VN Index was considered one of the world's strongest stock indexes, surpassing 800-point mark and 1,000-point mark, nearly exceeding 1,200 points in only a short time. The cash flow strongly flowed into blue-chip stocks, and leading stocks of banking, technology, construction and consumer service industry.
In theory, no stock index can sharply increase within a short time without a correction period thereafter. Thus, it is reasonable that many reputable organizations and experts in the stock market do not appreciate the sharp increase of the VN Index after the boom period of 2017 and early 2018. Also, they forecast that the VN Index will be corrected in a horizontal direction for the term 2019-2020. Such “sideways” correction is a normal market technical trend before the stock market enters a new rising phase.
As for market movements in 2019, it is recognized that the VN Index was corrected at the end of 2018 when this Index dropped from the 1,200-point mark to nearly 860-point mark at the beginning of 2019. Therefore, it is noted that the stock market mainly moves “sideways" at 960 to a 1,000-point mark in the correction period of 2019. The cumulative correction might continue until domestic and foreign cash flows enter the stock market.
From the perspective of a technical analysis, the monthly or weekly chart of the VN Index is still in a medium-term uptrend stage although stock market movements have mainly been horizontal from April 2018 to now. Thus, it is possible that the VN Index has not yet reached the period of strong increase in spite of a prosperous macro economy. Yet, the stock index kept around the juncture of 1,000 points is not a bad sign for a developing market like Vietnam.
Strong portfolio structure
Foreign cash flows are considered a supporting factor for the market when most of them are flowing into large-cap stocks to support the VN Index (VN30). However, in 2019, especially in the last six months of the year, foreign investors boosted net selling, focusing more on selling large-cap stocks such as VHM, VIC, GAS, MSN, and VNM. This seriously affected the stock indexes that have sharply reduced, especially from mid-January to now.
Compared to the last months of 2018, the net buying of foreign investors has not happened in the stock market in the remaining months of 2019. Foreign investors continue to be net sellers on the HSX and HNX. From 1 December to 17 December, foreign investors net sold nearly VND 9,000 bn, of which, blue-chip stocks with strong net selling were MSN, VHM, and VNM.
Many leading large funds in Vietnam such as Dragon Capital, VinaCapital, and especially ETFs, have restructured and reduced the proportion of their portfolio of holding shares. The fact that the shares have seen a sharp decline in price recently, such as VNM, MSN, and VHM, has resulted from restructuring of investment portfolios. Even individual shares like MSN have lost investor faith, even as Masan Group regained in the retail segment, and Vinmart of Vingroup as well. Accordingly, the value of MSN shareholders is under query now.
In addition, the process of restructuring the portfolio of ETF funds at the end of December may cause the stock market to enter an information gap, as well as begin the waiting period for the decision making related to NAV from such funds. Moreover, investors are also waiting for these funds to complete the portfolio structure and then disbursement can be done successfully.
Although the opposite movement in Vietnam’s stock market as compared to the world stock market is facing real issues that are compelling individual investors to be concerned and confused, it certainly is not such a big problem. In some cases, macro information is displayed and shared first, or simultaneously reflected through stock market movements. The fluctuation in the stock market sometimes reflects the changes in fiscal policies, monetary policies of central banks, or simply influenced by the psychology of investors.
Therefore, even if the VN Index currently is on an opposite movement trend compared to the world stock market, it should not be seen as a negative trend as the stock market indexes are usually uncertain and unpredictable.
Each stock index of an economy reflects the economic situation and is affected by completely different macro information. Synchronous fluctuations of the stock indexes in other countries may occur at this time, but these indexes may fluctuate in the opposite direction at another time. In general, the movement of Vietnam's stock market isn’t a serious concern at present. The current correction of the market is only temporary and the next trend will recover from this situation within a short time.
Accordingly, Vietnam’s stock market is forecast to become more prosperous in the first phase of 2020 and specifically, more foreign investors are now likely to net buy again.