Investment Strategy Report - October 2019: BOLSTERED BY DOMESTIC GROWTH
Vietnam macroeconomy continued to be positive as its GDP reached 6.98% YoY after 9M2019, the highest number in nine years. CPI was 2.5%, lower than the government target of 4%. Registered and disbursed FDI saw a strong increase in September, 47% and 60% MoM respectively.
We suppose that sound macroeconomic outlook can help 3Q earning results. Based on our survey for stocks in VN30 Index with our analysts, we think earning results among sectors and stocks will diverge from each others. Particularly, some leading stocks in sectors that had strong growth after 1H2019 such as Banking, Real Estate, and Retail will continue to have healthy revenue and profit. We also note that 2Q earning results impacted significantly stock prices movement in July. Hence, we think the market can rise as due to our positive forecasts for 3Q earnings.
Although Vietnam macroeconomic indicators paints a great picture to draw foreign capital, outside risks remains high as the biggest economy, US, is slowing down. The US ISM manufacturing index reached only 47.8 in September, the lowest reading in ten years. Hence, the market has placed more bet of another rate cut in late October.
In addition, trade frictions have negatively impacted market sentiment. Although US and China will have another meeting in October, recent comments from President Trump criticizing China during a UN Speech and US considering to delist Chinese companies from US stock exchanges are key risks.
The Brexit story has not directly impacted the Vietnam stock market in recent months. However, a no-deal Brexit can negatively impact global sentiment and eventually Vietnam.
As a result, ETF fund flows can continue to be disrupted. Vietnam ETF fund flows recorded an outflow of USD 12 mn in September. As foreign investors activities on stock exchange lags one month compared to ETF funds flow, they would continue to net sell in October but the figure can be lower than in September.
To sum up, we think the stock market can rise in October thanks to domestic macroeconomic and postive 3Q earning results in some leading sectors. Hence, the probability of surpassing 1,000 is rising. However, it is quite challenging for the VN-Index to maintain this level as there could be low or no support from foreign capital in October
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