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Investment Strategy Report: LONG-TERM OPPORTUNITIES, SHORT-TERM RISKS

​“VNIndex and HNIndex extended their gains in May yet enthusiasm faded as the months marched towards its end and market movers the like of VCB, VNM, BVH, VIC, BID and O&G leaders such as GAS and PVD failed to retain cash flows. On top of solid performance of fundamental mid-caps, the limited losses of larger stocks allowed indices to retain gains and moved sideways in a narrowed band into the first week of June. Last month, the O&G sector led the market with a gain of 20%, followed by retailers at 13% and household goods at 12%. Foreign investors remained bullish in May. Excluding the sales of VIC, foreigners accumulated a net VND3,300bn in the five months ended in May, little changed from previous year.

Economic indicators and gradual improvements in corporate earnings are all pointing to long-term positive trend for the stock market. Of the three macro focuses of 2016, i.e. (1) GDP growth, (2) interest and exchange rate fluctuations and (3) state budget imbalance, we have seen some optimistic developments in the former two in the second quarter as compared to the first quarter. On the one hand, we expected solid performance of non-farm sectors to offset to the drop in agricultural output and send the economy back to the growth trajectory in the second quarter. On the other hand, interest rates and the USDVND exchange rates have remained under the SBV’s control of the year despite concerns over an increase in volatility in the beginning of the year. Confidence in economic performance is expected to continue support market sentiment in the upcoming months.

Even so, the stock market of June is within the blast radius of external shocks, i.e. (1) geopolitical tension during Shangrila talks and arbitration of the South Sea, (2) a possible hike of the USD rates following the FED’s June meeting, (3) a correction in oil prices and (4) upcoming development of Brexit. Our observations indicate that over the past two years, maritime border tension with China have has immediate and strong impact on market sentiment. In addition, it seems unlikely that stocks like GAS, VCB, BVH, BID, VNM to move fast forward from their current prices while strong gainers will likely face a lot of sale pressure in the first week of June as traders take profits. If the market fails to find new leaders, VNIndex may face strong headwinds before it even reaches 640. However, VCB and BVH can emerge again to “save the index” in the last minute as they have done time and time again over the past few months. As such, VNIndex should continue going sideways within a narrow band until the end of the month.