Investment Strategy Report – October 2021: CAUTIOUSLY ACCUMULATE
The concern over Q3 results of large contributors of VN Index.
In October, the focus of the market would be Q3 earnings season when investors will be able to see the impact level of the pandemic on business results. Summarizing views from our analysts shows that the picture of Q3 business results will be diverse among industry groups. However, in large-cap stocks that affect the market, such as real estate and banking (accounting for nearly 54% of market capitalization), the business outlook in the third quarter is not really positive. Specifically, third quarter is usually the lowest quarter to record business results for the real estate industry. At the same time, due to the prolonged distance in Ho Chi Minh City and neighboring provinces, sales activities and construction progress were delayed in key areas such as HCMC, Dong Nai, Long An, which could affect handover progress and profit recognition.
In the banking sector, our industry expert estimates that the profit growth in the third quarter may slow down significantly compared to that in the second quarter of 2021. In addition, after a quarter of implementing social distancing in Ho Chi Minh City, the concern over bad debt is worrisome. Specifically, we still maintain the expectation of NPL and restructured debt rising strongly in the end of 2021, which will affect the marginal change and magnitude of provision. However, there will be a lag in the NPL formation rate and also polarization between banks regarding the bad debt movement. This trajectory can be seen through the downtrend of banking stocks, after isolating the idiosyncratic factors. The majority of NPL formation is estimated to occur in the fourth quarter.
External factor including tapering policy in the US may raise concern for investors but not at significant level on fundamental basis. However, short-term volatility is unpredictable.
In last three months of 2021, we recognize that US tapering policy and its issue over debt because of their money easing policy may impact on global stock market. For tapering policy, it previously caused sharp correction for emerging market in 2013 when Fed announced to reduce its monthly QE purchases from USD 85 billion to USD 65 billion. The countries with large external financing needs and macro economic imbalances suffered the most from speedy currency depreciation and reversal of capital flows.
On our view, Vietnam current situation is less worried when our FX reserves are quite abundant with USD 100 Bn, leading to better position on managing exchange rate. Therefore, the impact on VN Index may be not significant on fundamental basis. However, short-term fluctuation is unpredictable given the volatile of global stock market when Fed may begin its tapering policy in November. In short, we predict VN Index to move on 1.240 – 1.380 range.
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