return icon

Why the stock market sell-off when VN’s economy is strong?

Vietnam’s benchmark VN-Index sold off 11 per cent last week and was down 21 per cent in the year to date at the end of last week after being nearly flat until March end.

The sell-off in the Vietnamese stock markets has been consistent with what has been occurring in global markets, though selling pressure was exacerbated by many new retail investors dealing with margin calls for the first time and a crackdown on firms that borrowed money to buy stocks.

The sell-off in the Vietnamese stock markets has been consistent with what has been occurring in global markets. — Photo

None of this is however likely to have much impact on Vietnam’s economic growth or on the aggregate earnings of listed companies, Michael Kokalari, VinaCapital’s chief economist, assured.

“In Q1 earnings surged by around 30 per cent year-on-year, and we expect the earnings of all of the companies listed on the Hanoi and HCM stock exchanges to surge by nearly 30 per cent this year.”

Vietnam’s benchmark VN-Index sold off 11 per cent last week and was down 21 per cent in the year to date at the end of last week after being nearly flat until March end, he said.

Meanwhile, Vietnam’s economy is staging a strong recovery, which is driving robust earnings growth, meaning the primary catalyst for the sell-off is the ongoing drop in global stock markets and forced selling of stocks related to margin lending, he pointed out.

The number of retail stock investors has gone up nearly 70 per cent over the last 12 months and most of those new entrants to the market were enticed to open margin trading accounts with the lure of making quick profits, he said.

The correction in global markets triggered margin calls and many of these new investors simply abandoned their long positions, he said.

“We estimate that brokers’ outstanding balances have dropped by about 25 per cent from peak levels a few weeks ago. However, in addition to the forced selling of stocks prompted by margin calls on individual investors, there is an additional driver of stock margin related selling.

“Some local companies borrowed money with the stated purpose that the funds would ultimately finance real estate development and/or other projects, but the local business press has reported that certain firms then turned around and used the money to participate in the stock market.

“The Government is now cracking down on this misuse of funds, which is another source of forced selling of stocks.

“Furthermore, emerging and frontier stock markets will suffer from a 15 per cent year-on-year surge in the value of the US dollar because a strong appreciation in the [dollar] typically dissuades investors from investing in emerging/frontier stock markets.

“That said, Vietnam’s economy is very strong, which helped propel 29 per cent earnings growth in Q1, which we believe will help the market weather the current global stock market turbulence.”

The VN-Index’s sell-off comes despite the compelling fundamental strengths of its stock market like a forward P/E ratio of 11.4 versus 21 per cent consensus earnings growth expectations this year and 30 per cent valuation discount versus Vietnam’s regional peers, he said.

“There has been a fairly pronounced performance dispersion among the sectors of the stock market, which is generally attributable to fundamental factors, giving investors opportunities to take shelter in defensive sectors.”

He said three sectors stand out as pockets of relative strength, namely utilities, consumer discretionary and IT, the stock prices of which are being supported by strong Q1 results as well as other fundamental factors.

The earnings and stock price performances in the utilities sector are supported by a doubling of electricity production growth this year, while consumer discretionary stocks are benefitting from the ambitious expansion plans of some key companies in the sector, he said.

The IT sector’s earnings and stock price performance are being driven by a 30 per cent increase in the outsourcing revenues of FPT, the dominant player in the sector, and a near 60 per cent increase in its new outsourcing contracts in Q1, he said.

The earnings of materials companies soared by nearly 60 per cent year-on-year in Q1, driven by an eight-fold increase in the earnings of fertiliser companies and 45 per cent rise in consumer staples companies’ earnings, he said.

The value of the dong is nearly unchanged year-on-year despite a 15 per cent surge in the US Dollar/DXY index.

“We believe the resilience of the Vietnam dong despite the sharp appreciation of the US dollar is an accurate indicator of the underlying strength of Vietnam’s economy, which in turn should support the earnings growth and price appreciation of the market.”

Source: Vietnam News


Vietnam among few countries totally re-open int’l tourism market

Vietnam is the only only Southeast Asian country that has reopened international tourism without any COVID-19 restrictions, the World Tourism Organization (UNWTO) said.

Foreign Ministry spokeswoman’s story of being a writer

Assistant to Minister of Foreign Affairs, Spokesperson of the Ministry of Foreign Affairs Le Thi Thu Hang says journalism not only means reporting information, but it also has the function of leading public opinion.

Another S.Korean airline resumes direct service to Khanh Hoa

An Air Seoul flight carrying 187 passengers from the Incheon international airport arrived at the Cam Ranh International Airport in Khanh Hoa Province on June 24.

Interest subsidy vs monetary loosening

Some recent reports have indicated that the monetary policy of the State Bank of Vietnam (SBV) is not in sync with the global trend.

Developers expect smoother LNG policy planning

In Vietnam, about 20 LNG-fired power projects are in the pipeline. Some of these programmes, however, have yet to identify a fuel source.

National Assembly Chairman arrives in Budapest for Hungary visit

A high-ranking delegation of the National Assembly (NA) of Vietnam led by NA Chairman Vuong Dinh Hue arrived in Budapest on June 25 afternoon (local time), beginning an official visit to Hungary.

Next Top model crowned Miss Universe Vietnam 2022

Ngoc Chau, the winner of Vietnam’s Next Top Model 2016, was crowned Miss Universe Vietnam 2022 at a grand finale held in Ho Chi Minh City on June 25 evening.

WB, FTSE Russell pledge regular coordination in upgrading Vietnam's stock market

Representatives of the World Bank (WB) and FTSE Russell have committed to further supporting Vietnam to build a sustainable stock market, particularly via regularly exchange and coordination in the market upgrading matter.

Regions, sub-regions must be linked for development

In 2004, the Politburo released Resolution No 39-NQ/TW on socio-economic development and assurance of national defense and security in the northern part and southern coastal area of the central region by 2010.

Ensuring information security for digital platforms the top priority

Deputy Minister of Information and Communications Nguyen Huy Dung stressed that ensuring information security for digital platforms must be considered the key task, inseparable from the digital transformation process.

Aircraft fuel price reaches 8-year high

The continued air petrol price increase has caused headaches to air carriers. Airfares change from day to day.


Exhibition spotlights Hue’s enameled bronze art


Government seeks to resolve businesses’ capital shortage

Online exposure confers stardom on young singers

Restrictions on traditional entertainment channels by the Covid-19 pandemic have turned out to be a blessing in disguise for some young singers presenting their talents online.

Hanoi's transport department proposes more vehicles using the exclusive BRT lane

Hanoi Department of Transport has proposed the municipal People's Committee to allow passenger cars with 24 seats or more, official vehicles, ambulances and fire trucks to use Bus Rapid Transit (BRT) lanes in the capital.