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Investment Strategy Report - August 2019: SIDEWAYS

We suppose that earning result in second quarter already priced in July. Thus, this will not impact the market movement in August. Most of stocks in VN30 gain nicely in July because of their positive earning results in 2Q. However, positive performance in VN30 still could not help VNMid and VNSmall as these two groups had poor earning results with negative revenue and net profit after tax growth rates in 2Q.

Besides that, state-owned commercial banks has promised that they will reduce ceiling on short-term lending rates for five priority sectors by 0.5% to 5.5%. Small-and-medium enterprises, exporters or companies in supporting industries could benefit the most from this.  However, we think not many listed companies can satisfy bank’s credit assessment. Additionally,  in any case banks always offer low lending rates for solid companies. Meanwhile, it is hard to reduce medium-and-long terms lending rates as we see no signs of easing medium-and-long terms mobilizing interest rates. As a result,  interest expenses of listed companies might decrease only slightly, or not at all.

ETF fund flows in August may be more than that of July, but it will not help the market much.  The low inflows into ETFs in July may reduce the support from foreign investors in August. However, we remain bullish that ETF fund flows will be stronger in August because of the FED’s move to lower its benchmark rate by 25 bps. We are of the view that there may be more cuts before year-end. Nevertheless, we believe that until the US and China can reach a trade deal, markets will continue to exhibit high volatility. Foreign investors will remain cautious, especially following the recent announced additional tariffs by the US on USD 300 bn of Chinese goods.

To conclude, we think positive performance in July can somewhat help the market reach 1,000 in August. However, correction pressures from large caps and stocks that increased sharply recently may cause the VN-Index to drop from this level. Our target range for the VN-Index in August is 970 to 1015.