VN-Index may continue to retreat towards 1,700 points

VN-Index may continue to retreat towards 1,700 points

The area around 1,700 points is expected to serve as a technical equilibrium zone, where fundamentally sound stocks could gradually stabilise.

A trader talks to an investor in a trading office in Hà Nội. VNA/VNS Photo

The market ended last week under renewed selling pressure as profit-taking intensified and foreign investors remained net sellers.

After recovering for more than two weeks from around 1,650 points towards the 1,800-point resistance zone, the benchmark reversed course, with most of the losses concentrated in the final two sessions.

The VN-Index on the Hochiminh Stock Exchange (HoSE) closed the week at 1,729.08 points, down 2.2 per cent from the previous week, falling below its 200-day moving average, a widely watched technical indicator.

On the Hanoi Stock Exchange (HNX), the HNX-Index was last traded at 279.99 points, down 4.58 per cent.

Foreign capital flows added to the pressure. Overseas investors recorded net sales of more than VNĐ2.1 trillion (US$80 million) across the two main exchanges.

In particular, they sold a net VNĐ2.2 trillion on HoSE, while recording modest net purchases of VNĐ37 billion on HNX.

Pinetree Securities analyst Nguyễn Tấn Phong said the market reacted negatively to the widening gap between credit and deposit growth.

Lower lending rates without a corresponding decline in deposit rates could squeeze banks' net interest margins, while faster credit disbursement could increase asset-quality risks in subsequent periods, he said.

Selling pressure was particularly evident among banking stocks and Vingroup-related shares. 

According to analysts at Saigon-Hanoi Securities (SHS), total market capitalisation currently stands at around $401 billion, equivalent to about 78 per cent of projected GDP.

Vingroup-related companies account for approximately $92 billion, or 23 per cent of the market's total capitalisation. Their declines consequently weighed on other sectors, including real estate, technology, telecommunications, steel and chemicals.

Despite weakness in the benchmark, trading remained differentiated across sectors. 

Capital rotated towards State-owned enterprises and several industries that posted gains from the previous week, including rubber, industrial parks, textiles and garments, seaports and retail.

Valuations outside Vingroup also remain considerably lower than those suggested by the headline market figures.

SHS estimated that excluding Vingroup-related companies, the rest of the market was valued at around $309 billion, with a price-to-earnings ratio of 10.35 and a price-to-book ratio of 1.61.

In the short term, SHS expects the VN-Index to face further correction towards the 1,700-1,710-point range. 

The area around 1,700 points is expected to serve as a technical equilibrium zone, where fundamentally sound stocks could gradually stabilise.

Phong shared a similar view, forecasting that selling pressure could continue during the first sessions of the coming week, with the VN-Index testing support around 1,700 points, within a range of about 10 points on either side.

The banking sector would be particularly important to the market's next move because it represents the largest share of market capitalisation. 

According to Phong, stabilisation among bank stocks would be necessary for the broader index to establish another recovery phase.

Against the current short-term correction, analysts recommended that investors use potential technical rebounds, expected around the 1,750-point area, to reduce margin exposure and bring portfolios back to safer levels.

Investors were also advised to reduce exposure to stocks facing adverse effects from interest rate developments while prioritising companies with stable financial fundamentals. 

Bizhub