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Investment Strategy Report – July 2020: FOCUS ON EARNINGS SEASON

Abundant liquidity in the economy remains to be the main support of stock market in July. The gap between growth in money supply and credit remained positive for the tenth month in a row and is at a high level since 2016. Interbank lending interest rates for one month remain low, partly indicating that the liquidity in the banking system would continue to be sufficient in at least one month. In addition, although the State Bank of Vietnam continues to offer repos on OMO to help banks’ liquidity,  there is currently no outstanding volume. In this context, the reduction of deposit interest rates by banks would reduce bank’s capital costs and make other investment channels, including stock market and real estate, more attractive. Meanwhile, 1) negative Q2 business results and 2) cautious psychology of the market due to concern on rising Covid-19 cases would restrain market from rising sharply. These two factors would make the market move in cautious trend.

Firstly, data from the business plan of 638 enterprises in 2020 representing 84% of market capitalization on both HOSE and HNX, showed that the median net income growth is expected to decrease by 2% YoY. In which, median income growth from HNX and HOSE will drop by about 0.2% and 6.0% YoY respectively. Particularly for the VN30 group, the median income growth will decrease by about 11% YoY. Only 9 out of 28 enterprises in the VN30 Index set a positive income growth YoY plan, while half of them saying that their profits would decrease by more than 10% YoY in 2020. The result of the difference between the actual and the plan income in 2018 and 2019 of the VN30 group shows that the majority of companies tend to exceed their guidance but the gap is insignificant.

In addition, according to our statistics for the second quarter of 2020 business results, more than half of the businesses in our coverage would report negative growth YoY. In addition, most businesses in the two main groups such as banks and real estate are forecasted to have negative business results.

Secondly, market sentiment is affected by concerns about a second wave of the virus. The stock market started to decline sharply and foreign investors started maintaining net selling as the number of daily infections in the US increased sharply in mid-June. While US health officials believe that the number of Covid-19 infections may be 10 times the official figure, WHO has repeatedly issued warnings about a second wave of the disease. In this context, we think that the market's psychology would be cautious especially after the market has increased by more than 30% since the bottom in March.

We forecast that the VNIndex will fluctuate in a range of 820 to 900