External Factors Overly Affected Vietnamese Stock Market

Diep Nguyen

15:33 08/11/2018

BizLIVE -

The stock market declined despite strong fundamentals surrounding Vietnam’s macroeconomic situation. Any positive impact from third quarter positive results of listed companies was quite short-lived in nature.

External Factors Overly Affected Vietnamese Stock Market
In October, the VN Index lost 102.37 points. This was a -10.1% MoM drop, to 914.76 points. YTD, the VN Index declined in total by -7.06%. Liquidity decreased, with an average daily trading value reaching $197 mn USD (-5.4% MoM). 
Sentiment was hurt by a volatile global stock market, especially from the US and China. The domestic stock market, after a period of evading the fate of other international stock markets, started to correlate tightly with performance across global indices. 
Foreign investors reverted back to a net selling position (except for MSN treasury share transactions) which placed more pressure on what was already weak retail investors’ sentiment.
After a continuous increase from July to Sept, investors took profit primarily in stocks/sectors that soared in the last 3 months, such as oil & gas, textile & garment, and some mid & small caps. 
SSI sees that Vietnam’s stock market was heavily affected by external factors such as an escalating international trade war, Fed rate hike, expected global growth slowdown, weakened renminbi, etc. 
As a result, the stock market declined despite strong fundamentals surrounding Vietnam’s macroeconomic situation. Any positive impact from third quarter positive results of listed companies was quite short-lived in nature.
In overall, third quarter earnings results were in line with our expectations, with more companies posting positive results than negative ones. Financial expenses are trending up due to higher FX loss and interest expense with most notable cases being HVN, POW, HSG, NKG or HBC. 
In line with the movement of CNY, VND declined -1.6% in value against USD in the third quarter, while it lost only -1.1% in 1H 2018 in total. Starting 3Q 2018, SSI sees some banks, including State-owned commercial banks, slightly raised their deposit interest rate by 0.1%-0.5%.
Robust Banks’ earnings results: As of 20 Sep 2018, credit growth reached 9.52% YTD, lower than 12.21% YTD as of 30 Sep 2017. 
SSI believes that Vietnam’s monetary policy shifted from accommodative to a mild tightening stance, starting in July 2018. In spite of lower credit growth YoY, higher NIM as a result of a change in the loan mix (more individual loans characteristic of higher margins) and lower provision expenses following improved asset quality led banks’ earnings growth to still be very positive up to 9M 2018. Banks under SSI coverage increased by 42% YoY in terms of PBT up to 9M 2018. 
According to the SBV, total bad debt is on the decline, from 10.08% of total outstanding loans in 2016 to just 7.7% in 2017 and 6.7% by June 2018.
Foreign flow: Except for the transaction of MSN treasury shares sale to SK Group on 2 Oct, 2018 (~VND 10.99 tn or $471 mn USD), foreign investors net sold in Oct (~$75mn USD). On both the HSX and HNX, however, foreign investors net bought $1.72 bn USD YTD. 
As of 31 Oct 2018, foreign investors are holding a 21.9% stake in Vietnamese stocks (vs. 23.3% by year end 2017), and accounted for 16.6% of average trading value. Vietnam’s stock market still remains dominated by domestic retail investors.
Valuation: Based on SSI Research coverage, 2018 & 2019 net profit growth of Vietnam listed companies is estimated to be at 25.4% YoY and 18.4% YoY. On 31 Oct 2018, the Vietnam stock market is trading at metrics of 14.7x 2018 PER and 12.5x 2019 PER.

DIEP NGUYEN