The third quarter is expected to be a period of consolidation for Vietnam's benchmark VN-Index, ranging from 900 to 1,000 points, VDSC said in its latest Investment Strategy report.
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In Vietnam's stock market, the target range for the VN-Index in the third quarter is 900 to 1,000 with preference for a re-test of 900.
The report also pointed to the price action in the second quarter, in which the VN-Index peaked at 1,207 on April 5, 34% above its 200-day moving average (MA200). The Index has currently retreated to below its MA200 at around 983-986.
A break below 900 would take the Index to around 840, the lower bound of the upward channel in place for the past two years.
It is possible that the benchmark index tries to break the 1,027-1,040 territory but that would only be possible in a risk-on environment.
Opportunities to buy after time correction
The report reminded that despite rising external risks caused in part by the US - China trade war, Vietnam's economy showed its best performance since 2011 in the first six months of 2018.
In the first half of 2018, GDP growth reached 7.1%, a level not seen since 2011. The agriculture, forestry and fishery sector recovered and rose by 3.9% year-on-year, while the growth rate of the industry and constructionm and service sectors was 9.1% and 7.0% year-on-year, respectively.
Stronger demand and improved business conditions explained why Vietnam's Manufacturing Purchasing Managers' Index (PMI) rose to 55.7 points in June from 53.9 in May.
Total retail and services sales grew 8.3% year-on-year (inflation adjusted), higher than the growth of 7.9% in the first six months of 2017.
VDSC assessed the confidence of consumer as well as investors has been rising. Consequently, Vietnamese consumers are willing to pay more for premium goods such as healthcare insurance and discretionary consumption goods. Following the government's support, domestic investors have been investing more in manufacturing substitute goods enterprises.
In the stock market, VN-Index's price/ earnings ratio (P/E) decreased to around 16x, equivalent to the level of mid-2017 after more than three consecutive months of a deep correction. Meanwhile, the market's net profit after tax (NPAT) growth was 24% year-on-year in the first quarter of 2018, implying a less-than-1 price/earnings to growth ratio (PEG ratio).
However, Vietnam's stocks still face more risks from external factors (FED rates hike, trade war, and Chinese yuan depreciation) which can put more pressure on a potential devaluation of the Vietnamese dong and an outflow of "fast money".
Although VDSC believed that the SBV's resources are strong enough to control exchange rate fluctuations within its target range, the report predicted that monetary policy will be tighter in the last half of 2018, implying less liquidity for risky sectors like the stock market and real estate.
Overall, VDSC remained bearish on the VN-Index for the next few months. There will be better buying opportunities as this time-correction fazes out, it added.
