Macro and micro scenario feed rising stock index
Macro and micro scenario feed rising stock index
Back in April, we forecast that the VN-Index would finish the second quarter at between 620 and 640. Our target was six days too early. The index closed the quarter at only 593, but surged to 625 on July 6.
During the first six weeks of the quarter, both the VN-Index and HNX-Index recorded lackluster performance. Although the VN-Index was able to rise from 539 on April 1 to 568 on April 16, it then declined steadily to a low of 529 on May 18. The HNX-Index recorded similar performance. Although the macro news was generally positive during this time, market sentiment was poor. At this point, the market was trading well below what we considered to be its fair value, but there did not seem to be any catalyst to push stock prices up. 600 seemed like a difficult barrier for the VN-Index to push past.
Then on May 19, rumours began to surface that the government would relax foreign ownership limits on Vietnamese-listed companies. Although we had heard such rumours before, this time seemed to be more credible and, in fact turned out to be true, with the announcement of proposed amendments to Decree 58. This led to a strong market rally, largely attributed to foreign investors.
On the HOSE, foreign investors were net buyers for three consecutive months in Q2. In fact, foreign investors were net buyers in five of the first six months, and net sellers only in March, with a total net purchase value of over VND4.318 trillion ($198 million), and their purchased volume increasing significantly in the second quarter to VND4.066 trillion ($189 million) from just VND252 billion ($12 million) in the first quarter.
On the HNX, foreign investors had been net sellers in the first quarter, but became net buyers in the second. Total value of first half net purchases reached VND694 billion ($32 million). Notably, foreign investors were net buyers throughout every trading session in June.
The news of Decree 58 was complimented by other items that turned market sentiment much more positive in June. Vietnam’s ETFs (FTSE and VNM) implemented their portfolio restructuring transactions, leading to some inflows. Additionally, there seemed to be daily headlines regarding the TPP, leading to optimism that the trade agreement would be signed in due course.
Vietnam’s markets may also have benefited somewhat from the misfortune of others. Economic distress and volatility in other countries made Vietnam look more stable and attractive by comparison. China’s stock markets had experienced bubble growth in the past year. As of mid-June 2015, the Shanghai Composite Index and Shenzhen Composite Index peaked, up 2.5 and 2.9 times respectively, and with the implicit risk of collapse due to the large proportion of retail investors participating in the market, a higher level of financial leverage, and economic growth not commensurate with the growth of the market. In Europe, the debt crisis in Greece and the risk of Greece leaving the Eurozone made European markets seem quite unstable compared to emerging Asia. Many international investors lowered their allocations to these markets and redirected some of their investment to Vietnam.
Vietnam’s strong performance in June also ran counter to relatively weak performance by our neighbours in Thailand, Indonesia, and the Philippines during the same period, indicating that domestic factors outweighed global economic developments.
It is not surprising to see energy and materials stocks among the lowest performers over the past twelve months, due to continuing low commodity prices. However, energy stocks have actually performed fairly well since May 18. The financial sector classification set out by the HSX includes a wide variety of companies, including banks, insurers, securities firms, and property real estate companies. While this sector’s performance was quite bad from last July through May 18, it improved dramatically from that point onward. The revised Decree 58 strongly affected securities companies, and the positive market sentiment gave a strong boost to banks. Insurance companies also benefitted handsomely from the prospect of increased foreign investment. Looking at the top five gainers on the HSX and the top five on the HNX during the quarter, half of them are from this sector: BVH and BIC in insurance, VCB and ACB in banking, and VND in securities.
Consumer stocks and technology stocks have been among the top performing sectors for the past twelve months, and continued to do well in the second quarter. Indeed, the two largest technology stocks are actually consumer companies (FPT gets approximately 60 percent of its revenue from retail activities, and MWG is a retailer of electronic devices). Strong retail sales growth and macro-economic stability have created good conditions for these industries’ growth. Industrials have also performed well since May 18. These shares have benefited from announcements of GDP growth and rumours of free trade agreements creating the potential for growth.
