Investment Strategy Report - JulyÂÂÂÂÂÂ 2018: Stock Picking
Currently there appears to be four headwinds facing equities: firm oil prices, mighty dollar, rising pressure on prices and wages in developed economies, and The Donald. We also can add the fact that equities globally have been in an uptrend for nine years: a long cycle. On the positive side, real rates are negative in most developed economies and valuations are more reasonable following the recent correction, but still not ‘that cheap’.
Vietnamese equities are still pricey. The market is supported by rising RoE (19% in 2018F versus 15% in 2017) and high Ebitda margins (26%). Will it be enough? P/E’s have expanded for the past seven years.
We expect a period of consolidation for the VN Index in 3Q. Our target range is 900 to 1000 with a preference for a re-test of 900. 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 market tries to break the 1027-40 level but that would only be possible in a risk-on environment. Overall, we remain bearish on the VN Index for the next few months. There will be better buying opportunities as this time-correction fazes out.
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