Tellimer

Vietnam strategy – October 2020: Be patient for opportunities

  • Low interest rate environment and series of macro indicators turning positive helped the stock market extend rally
  • Q3 20 results of listed companies will partially influence the movement of the stock market in October
  • We think a prudent investment strategy is appropriate during this period as many stocks have priced in Q3 20 results

The low-interest rate environment along with a series of macro indicators starting to turn more positive have helped the Vietnamese stock market to extend the rally in September. Besides, the number of Covid-19 community transmissions that were quickly extinguished since early September has also strengthened market sentiment. Accordingly, the VN-Index did not fall despite a strong correction seen in US stocks or continued selling from foreign investors.

In early October, the State Bank continued to reduce interest rates as well as the deposit interest rate ceiling. Although the actual impact of these interest rates cut is considered to be limited since liquidity in the banking system is still abundant, this move from the SBV reinforces our view on the attractiveness of the stock market relative to other assets such as gold or real estate. Besides the expansionary monetary policy, we expect that fiscal policy will play a more important role in promoting economic growth in the coming time, as well as creating a more positive sentiment for the stock market. The disbursement progress of public investment has remarkably improved. Accumulated 9M 20 public investment disbursement reached VND485tn, up 13.6% over the same period last year, the most positive cumulative growth since 2011.

Q3 20 business results of listed companies will be announced gradually and this will partially influence the movement of the stock market in October. We think that some companies' business results will not be as bad as previously forecast since macro signals are more positive than expected. Vietnam's GDP in Q3 20 is estimated to grow by 2.62% yoy, better than consensus despite the second Covid-19 outbreak in Da Nang. However, results will diverge. Some stock groups (galvanised steel, fertiliser, securities brokerages, and private joint-stock banks) seem to price beating-the-consensus Q3-20 business results, and thus have outperformed the market in the past few weeks.

On the other hand, this also implies the high likelihood of a market correction in October as earnings are released, followed by a "quiet" period. Also, we see some risks from the increasingly volatile international markets ahead of the US presidential election taking place in early November.

In general, we think a prudent investment strategy is appropriate during this period as many stocks have priced in Q3 20 business results. Should the market correct considerably in October, we recommend investors to accumulate stocks with more positive changes in business activities in the late 2020 period.

See the full 22-page report for detailed macro, sector and stock analysis.


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