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Investment Strategy Report - October­­­­­­ 2017: Stock Picking

In September 2017, VNIndex successfully conquered 800 points and marked the first month of foreign investors’ net sale in 2017. Large-cap stocks with their own stories, such as VNM, SAB and HNB with State-owned divesment expectation, GAS with the oil price fluctuation, banking stocks with expectations for earnings growth as well as private placement posibility for foreign strategic investors were the main factors controlling the performance of VNIndex. However, we have found out that the impact of these stories is short-term but could distort VNIndex and made the market picture become unclear. The divergence among stocks cooled down investors’ enthusiasm, especially when they were under net selling pressure. As a result, VNIndex fluctuated in a narrow range during last two weeks of September.

In October 2017, we believe that VNIndex’s performance will continue to be affected due to the above-mentioned factors. The diveragence among stocks is unlikely to cause VNIndex to go far beyond 810 in the short term. Meanwhile, in terms of fundamentals, there are no new expectations which could bring more excitement to the investors. The support factor for the market at present is that macro is stable and GDP growth is following the Government expectation.

Our short-term concern is the less eager participation from foreign investors. In fact, their contribution to the total transaction value has been lower than the multiyear average ratio since August 2017. In September, foreign investors actually sold out. Foreign investors’ involvement is still considered to be a great support for the "psychology" of domestic investors. Therefore, their action should be closely observed in October to confirm their confidence ahead of the high current valuation of VNIndex.

The optimistic view is that liquidity remains at over VND3T. In addition, although some speculative stocks rose sharply in September, the money quickly flowed out of this group by the end of the month. It can be seen that investors are cautious and conservative with speculated stocks and are not hurrying to buy large caps after VNIndex surpassed the 800 level. Investors have begun to discuss about Q32017 earnings results of the listed firms. However, the picture of profit is not strong enough to suggest accumulation stocks at this time. The seasonal heating map of Bloomberg showed that the probability that VNIndex will increase is lower than that of VNIndex will decrease in October, and there is high probability that VNIndex will decline in November. This suggests that the impact of the third quarter earnings season is quite faint.

The ups and downs of large cap stocks are creating a balance for the VNIndex, helping the market's PE not to exceed the 16x threshold set this year. In October, we think VNIndex will fluctuate between 787 - 810 points. Given that (1) VNIndex is at the highest level since 2008 and (2) foreign investors are not as active as in the first half of the year, we think that disbursement in October should be cautious. Excessive sessions of the market are opportunities for investors to restructure their portfolio. In particular, we think investors should reduce the proportion of speculated stocks as well as screen and accumulate stocks with bright prospects for medium- and long-term investment.