Vietnam’s benchmark VN-Index is projected to be under strong influence by foreign capital flows, which are affected by the global interest rate hike, the prospect of an inclusion to emerging market index, state capital divestment or the adoption of the amended Securities Law, according to Bao Viet Securities Company (BVSC).

Vn-Index is expected to decline or grow at a slow pace when interest rate increases. Source: BVSC.

Based on the brokerage’s observation since 2009, the movement of the VN-Index has reflected expectation about GDP in the following year and reflected earnings-per-share (EPS) growth (about 6 months earlier).

Under this context, the VN-Index normally has positive movement if the USD/VND exchange rate fluctuates within a range of 3% and deposit interest rates are below 10%. The VN-Index is expected to decline or grow at a slow pace when interest rates increase.

BVSC forecast the GDP growth could come at 6.8% in 2019, down 0.3% compared to 7.08% in 2018; the CPI may expand by 3.5%, deposit interest rates could be 7.3% and the VND weakens by less than 3%. 

Thus, macro-economic indicators have both negative and positive impacts on the stock market in 2019. 

It is expected that the overall impact of domestic macro-economic indicators on the stock market would be neutral. 

The stock market can hardly come under significant effects from domestic factors, BVSC stated.

Factors influencing foreign capital flows

In 2019, when the State Bank of Vietnam (SBV) tightens monetary policy and wind down quantitative easing, capital mobilization would be hindered. 

However, Vietnam can still attract capital inflows from Korea and Japan through large-scale divestment and negotiation deals. In addition, hedge funds will soon penetrate into large-cap stock market

According to the Draft Amended Securities Law, the foreign ownership ceiling for public companies is extended to 100%, excluding international conventions of which Vietnam is a member or specialized laws state otherwise. 

This amendment can bring opportunities for insurance sector which has no foreign ownership cap and investors can raise their ownership ratios without approval of shareholders.

Currently, Vietnam has satisfied eight out of nine prerequisites to be included in the secondary emerging market index of FTSE. 

Only “clearing and settlement” criterion is expected to be improved after the amended Securities Law is reviewed and approved by the National Assembly of Vietnam in October 2019.

With regard to the MSCI index, the amended Securities Law is expected to improve stock market quality, thereby helping Vietnam satisfying all the criteria for a reclassification of MSCI as soon as possible.

If Vietnam is included in the emerging market index of FTSE and MSCI in March 2020, the VN-Index may begin to surge in the fourth quarter of 2019, while passive capital inflows running into the market could reach US$1 billion. 

In the second half of 2019, when the market fulfills criteria to qualify for a reclassification, new speculative foreign capital flows could run into Vietnam's stock market.

By late 2019, the VN-Index is projected to move in a range of 895-960. The market may see a fluctuation divided into small waves. 

The market’s ups and downs would depend on the events such as an inclusion to the emerging market index, the divestment of state-owned stake, or the amended securities law, among others.

Hanoitimes