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Investment Strategy Report 2019 - Be Cautious, not Pessimistic!

2019 is likely not to be an easy year for equity markets in general. Under the current global context, it will be hard for Vietnam to ‘swim against the tide’. We think staying cautious is necessary, but investors should also not be overly pessimistic. We may have already gone through the largest part of the selling and money outflows. Valuations are down a bit but have not reached the ‘cheap’ territory yet. There is potentially slower earnings growth in 2019. However, some stocks are definitely worth looking at. It all comes down to stock picking.

Generally tighter monetary policies globally are not positive for equity markets. However, we think large money outflows out of equities, especially from emerging markets, has already happened in 2018. Risk aversion has made investors move money from emerging markets back to developed ones. The most recent announcements from the FED make it difficult for us to believe that interest rates will rise sharply. This could be a catalyst for improvement in confidence. There might be some inflows back into markets which will be good for Vietnam. However, it will probably take some time as investors have been burned in 2018.

In terms of valuation, we finally saw some P/E contraction. Valuations have gone down a bit to reflect the slower growth in 2019. VN-Index is now trading at 16x P/E. Considering flat earnings growth and the flow of capital, we do not expect a P/E expansion in 2019.

We think the index will fluctuate around the 900-1000 points. In that context, stock picking is what matters. Some stocks are pricier than others. Companies with a strong business model will be able to resist if the market fall sharply. If this occurs, avoid owning stocks with high multiples … unless growth is extraordinary.