The VNIndex plunged 4.8% on Thursday, 12 October which we attribute to the following reasons
1. IMF cut global growth forecast
The International Monetary Fund said the world economy is plateauing and they cut its growth forecast for the first time in more than two years, blaming escalating trade tensions and stresses in emerging markets.
At its annual meetings in Bali IMF, on Tuesday, projected a global expansion of 3.7 percent this year and next, down from the 3.9 percent projected three months ago. It was the first downgrade since July 2016. Risk factors included a further tensions of the trade war between the U.S and countries including China, and a sharper-than-expected rise in interest rates, which would accelerate capital flight from emerging markets.
2. Foreign money outflows:
Based on the global market correction, foreigners have pulled out USD 58mn (VND 1,345bn) over the last 7 trading days, which seems to have partially kick started the correction in the Vietnamese stock market (see figure 1, click on the chart to increase the size).
As we have mentioned several times, foreign flows are more likely to impact the trend of the VNIndex going forward as the correlation of the Vietnamese especially compared to the Emerging Market Index has been in an elevated range of 0.65 to 0.98 during the period of October 2016 to date (see figure 2, click on the chart to increase the size).
3. Local investor sentiment:
Based on our observations, Vietnamese investors (the majority are local individual investors) have the tendency to watch foreign flows closely and base their trading decisions partially on those flows. What currently adds to the negative momentum are uncertainties about the trade war implications for Vietnam and the negative trend of the Dow and S&P 500, which local investors follow closely as well.
We do not see a change in macroeconomic numbers, nor any hints that local companies will be severely hurt by negative external factors. As always, we stick to our strategy which is disciplined bottom-up stock picking based on a fundamental approach.
As of today, our BUY Recommendation List carries a 2019F P/E of 10.6x and 2019F P/B of 1.6x and dividend yield of 4.6% which we see as very attractive.
Feel free to get in touch with us, if you wish to discuss further details.
Featured image credit: Pixabay