Investment Strategy Report – March 2021: RIDING THE WAVE OF SOARING COMMODITY PRICES
The VN-Index is likely to struggle to break the 1,200 level in the short-term due to its own trading technical limitations as well as negative sentiment around global investors’ concern about the rapid-rising inflation (please refer to the stock market and macro economy sections above). However, we believe that stock markets have recently priced in those risks. Thus, negative impact from this may not be too concerning. Besides, we maintain our view that Vietnam's 2021 inflation will stay in a controllable range (~3.5%) and, hence, it is unlikely to see any surprises in the current easy monetary policy which supports the recovery of the economy. Therefore, we expect the stock market to advance higher as we go forward into 2H-2021.
Yes, the likelihood of weak trading sessions will increase as we approach the all-time high. We recommend accumulating stocks in commodity-related sectors namely steel (HPG, SMC), oil and gas (BSR, PLX, GAS) and fertilizer (DPM) in dropping sessions will be worth considering. We believe that these firms can benefit either directly from soaring commodities’ prices or from their pricing power to assert higher output prices relatively to input ones.
Although commodity markets have been booming, we expect this trend to extend for a while due to a variety of factors including, but not limited to: (1) widespread instability in supply side across commodities. (2) The rapid recovery of the world's second largest economy is driving the demand for them. (3) Ramping-up progress of global vaccination campaigns to spark optimism for faster recovery of the developed economies. (4) Weak dollars.
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