However, based on the stability of macro policies and the economy and the advantages compared to other regional markets, the VN Index is expected to break 1,000 points by the end of 2019.
Stable macro economy
Vietnam GDP growth reached 6.8% YoY in the first half of 2019, in which manufacturing grew 8.6% YoY, service sector grew 6.5% YoY, inflation reached 2.3% YoY at the end of August driven by the price adjustment of healthcare and education services.
Registered FDI reached USD 22.6bn in first 8 months, a decrease of 7% YoY. However, FDI disbursement grew 6.3% YoY to USD 12bn. Trade balance was 3.4bn surplus in 8M/2019, in which exports reached USD 170bn (+7.3% YoY), and imports reached USD 166.6bn (+8.5% YoY).
PMI index was maintained above 50-points threshold, reaching 51.4 at the end of August.
However, the economy still faces many challenges including exports of agricultural products to China; risk of tax imposed by US; liquidity in banking system; risk of interest rate increase; and the risk that the real estate market may freeze. The growth of the economy is expected to be based on the improvement of domestic consumption; the high speed of urbanization; the benefit from movement of investment from China to Vietnam; the increase of exports to US market; and the improvement of administrative process of government.
After breaking above 1,000 points in March, the stock market has stepped to the down phase in second quarter. However, VN Index has posted some signs of recovery recently.
The recovery of stock market was driven by the growth of some large-cap stocks including VIC, VHM, VRE, GAS and VCB.
However, the liquidity was down to USD 173mn/day, a decrease of 29% YoY.
All of the above signs show that the current market lacks factors to support VN Index growing further.
Data shows that the sector which posted the strongest growth in the second quarter was real estate and construction. Adversely, the sectors which fell significantly in second quarter were financial services and banking.
This means that the share price of stocks in real estate sector now are quite high, while the share price of stocks in banking and financial service sector are attractively low, excluding VCB. There is a bid divergence in different stocks in the market.
Notably, although the stock market has grown 11%, the asset value of investment funds in Vietnam has only increased 7%. This shows that big portfolio is hard to outperform in the market. This is a normal thing to happen in the market when market liquidity is low.
The big investment funds find it hard to reallocate the portfolio, take profit or stop loss in the thin trading market.
Market expected to grow slightly in coming times
Vietnam stock market posted the strongest growth in ASEAN in 2019. P/E ratio of VN Index stood at 16.3, higher than P/E of other regional markets. However, Vietnam stock market is still attractive thanks to the stability of macro economy and advantages from the US-China trade war.
Although foreign investors have net sold VND 1,600bn in August, this amount was still lower than that in other regional stock markets. The notable thing is liquidity in August improved and the demand from domestic sector returned.
Although there are many risks from the on-going US-China trade war and other global issues which cause money withdrawal from emerging markets including Vietnam, VN Index is expected to increase slightly by the end of this year. The stock market is expected to reach 1,000-1,050 points by the end of 2019. Investors should focus on stocks which are not impacted by global issues, such as the consumer sector.