Strategy Note / Vietnam

Vietnam strategy – September 2020: Uptrend boosted by 'cheap' money

  • No mass lockdown will create a nascent recovery of around 3.0% in 2H20 GDP growth, in our view.
  • Market is likely to follow the uptrend momentum of August
  • We estimate 2020 budget deficit at around 5.5-6.0% of GDP
Vietnam strategy – September 2020: Uptrend boosted by 'cheap' money

Vietnam's stock market increased sharply in August and became one of the best markets in the world as the VNIndex increased by 10.4% m/m. Looking back on the last few sessions of August, we notice that liquidity was rising in the last part of the month. This was different from the sudden liquidity rises in June and July the when market corrected at that time. By contrast, we found out that when the liquidity and the market are in the same direction, the market trend usually is maintained in the following days, which happened during April and May.

Besides the uptrend momentum of August, we also expect more positive from the foreigners. In the context that foreign investors have remained net sellers for months, the new capital from foreigners would be a big support for the market.

We assume that the upward momentum of August and the expectation of new foreign capital could support the VNIndex to surpass the June high, of 900, and possibly reach 920. However, we believe that the recent uptick of the market is not sustainable when, based on our observations, the margin outstanding may have increased sharply along with the recent rise. In that context, market sentiment will be easily affected by negative news. Strong volatility of the global stock market would be one of them. After a series of consecutive declining days, the VIX index rebounded to over 30 points, warning of potential weakness ahead. When the US market increases strongly and suddenly to create a new record high, this market tended to correct deeply after that. Looking back at these times, the movements of the VNIndex was not too positive.

In summary, we believe that the market will be supported by the rising momentum of August and the expectation of new large capital from foreign investors. The VNIndex could reach 920. However, the uptrend in September is more bumpy. While global stock market shows signs of weakness, margin outstanding may also have increased significantly recently. Hence, any negative flows could affect the stock market. For example, the US volatility index bounced back after the S&P 500 hit its historic peak. Therefore, we believe that the VNIndex can fluctuate in the range from 870 to 920.

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