HSC Daily Market Watch includes a strategy note

Ngày đăng September 21, 2018

 Market commentary – The VN index decreased with turnover above recent averages. Market breadth widened while we also see that 23 stocks went to the ceiling and 27 stocks fell to the floor. Foreigners were more active net sellers to a noticeable degree. The put through market was less active with large deals in VHM & ROS and then a smaller deal in PDN seen going through. 

Foreigners were active buyers of VHM; VNM and HPG. And net sellers of HPG and VRE. 

  • Bank shares performed very well today, led by CTG and VPB.      
  • Non-banks shares were mostly higher, led by VND and VCI.      
  • Consumer and retail names were mixed with gains for KDC and MSN while there were losses for QNS and MWG.      
  • Tech stocks were mixed with a gain for YEG while FPT stayed flat.       
  • Manufacturing names were broadly higher, led by NKG and DQC.       
  • Resource names were all down, led by PVD and PVS.       
  • Real estate and construction stocks were mostly higher, led by CTD and CTI. NVL closed at the floor.       
  • Agriproducts and aquaculture stocks were mixed to higher, led by GTN and HAG. 
  • Pharmaceutical stocks had sideways movement.     
  • Utilities, transport and logistics stocks were broadly higher, led by VNS and HVN.    

 

Vietnamese stocks close mixed – The markets ended the day mixed with the VN index slipping even as the VN30 and HN index continued to gain ground. VHM was the biggest decliner in index points while fellow real estate stock NVL fell to the floor. Resource names took a breather with PLX and PVD declining after recent strong gains. Consumer stocks were mixed with MSN & SAB losing out and KDC crashing. BID was a loser amongst banks. 

On the other hand, VNM gained some ground while retail names PNJ & MWG advanced. Banks such as VCB; CTG; MBB; VPB and TCB all advanced once again. Steelers such as HPG continued their recent rally. Most blue chips were making gains today and VHM’s decline and NVL’s collapse were the main reason the VN index lost out. In both cases, this was primarily due to technical factors. 

The four futures contracts continued to climb and gained more than the VN30 cash index today. This meant that all four contracts are now trading at a 3.6-5.6 premium to the VN30 index. While the long-dated contract is trading at a small discount to the short-dated contract. In the short time (about two months) that we have been closely observing futures, we note that for them all to trade at a premium to cash is highly unusual. And suggests that the futures market has turned very optimistic about the short-term outlook. While still a little uncertain about the long-term outlook. This reinforces our belief that stocks will move higher for the time being.   

The markets fluctuated in a narrow range today after yesterday’s breakout. The fact that we have now spent a second session above the 1,000 level for the VN index would suggest that this is now confirmed despite the slippage towards the close. This is reinforced by the fact that the broader market indices and the VN30 closed higher. Not to mention the futures market. Things look fairly positive for the near term. As we explain further below. 

Strategy noteVN index very likely to make an attempt to break above the 200-day MA line soon. We think it will succeed and see up to 15% upside for the index between now and the year-end. 

The VNindex has now broken through and found support at successive resistance lines in recent weeks. First the 50-day MA and then the 100-day MA. We are now closing in on the 200-day MA and could test it as soon as next week. HSC takes the view that such an attempt will succeed. If not on a first attempt, then on subsequent attempts. And here is why; 

The market is currently being underpinned by strong macroeconomic and microeconomic factors while sentiment has been buoyed by the recovery in regional markets. The fact that Wall Street has been hitting record highs is also of course very important. And equally important is a weaker dollar and rising oil prices. This has prompted foreign investors to return to the market where whey have been net buyers for VND1,067 billion of the last 9 trading days. After a long period of predominant net selling dating back to late April. Domestic investors have already shown strong interest in buying back into stocks for a lot longer. The VN index bottomed out on July 11th, 2018 when it closed at 893.16 and observable margin lending appears to have bottomed out on July 5th, 2018.   

HSC forecasts that GDP will easily hit 6.7% this year with a best case of 6.9%. And that CPI will come in around 4% y/y which is close to official targets and not significant in terms of policy impact. We then see a 2.5-3% depreciation in the VND versus the US$ given the US$ strength, DXY ranges from 95-97. The balance of payments looks healthy given a trade surplus and a current account surplus as exports are growing at an annualised 16.7% pace while disbursed FDI is up around 9.2% y/y as of the end of August. 

HSC forecasts that FY2019 GDP will reach around 6.7% with a best case of some 7%. We see CPI around the 4.5% level. And expect a 2% depreciation in the VND versus the US$ given DXY does not go beyond 100. Export growth may slow somewhat with global trade, however in contrast Vietnam’s share of global exports should increase as some U.S. buyers switch from China to Vietnam. 

We take the view as seen in our recent note on the U.S. – China trade dispute that this ongoing struggle will (1) take time to resolve and (2) is neutral for Vietnam in the short to medium term. And (3) a positive in the medium to long term. Mainly as some manufacturing capacity will shift out of China and into Vietnam in segments such as technology; garments; aquaculture; and various types of light manufacturing. That will take some years to show but, in the meantime, existing FDI plants and domestic players will see more immediate benefits.  

The microeconomic climate does look healthy overall. We note some minor impact from slower credit growth than we saw last year. With credit growth now expected at around 16% y/y by year end compared to 18.24% in FY2017. However, given the greater efficiency of credit growth these days with most of it going to private manufacturers and SMEs we don’t see this as having any negative macroeconomic impact this year. 

HSC forecasts that the TOP70 stocks will see FY2018 EPS growth of around 20.12% y/y. This is slightly more optimistic than our view at the beginning of the year. Most sectors should experience strong earnings this year led by financial sector stocks; real estate and resource names. With real estate and consumer names showing decent growth overall. And while prospects for banks earnings may look a little less bright than perhaps several months ago on sluggish Q3 credit growth, our forecasts there will not need to be changed. We also note that some consumer names such as VNM and KDC appear to be struggling a bit. However, other than that the earnings picture looks unusually bright.  

This earnings outlook is likely to be carried into next year also. Primarily because we don’t see much change in the macroeconomic environment for the next 12 months. Frankly, we don’t have visibility beyond that at this stage. While the earnings cycle is most sectors is either (1) secular in nature or (2) where it is cyclical we are still mid-cycle. There will always be some subsegments of the economy where earnings are faltering due to higher competition or sluggish demand. However, on the whole. Most major segments have a series of favorable tailwinds at their backs and therefore should see decent growth into next year at least. 

Vietnam is increasingly being seen as an honorary or future member of the emerging market club. And therefore, the market is now tied into the fortunes of emerging and regional Asian markets as a whole. First and foremost, this means that the US$ and oil prices are very important factors to consider. Closely followed by emerging market flows. 

Over the next 6 months, we see the trade weighted dollar index as trading between 93-97. And even at the lower end of that range for the foreseeable future. Our argument here is that two more interest rate hikes by the fed this year is baked into the currency. While some are arguing that the Fed might take a more cautious view on rates next year. 

We assume then further assume that WTI will hit US$75 and Brent US$ 85 a barrel respectively in Q4. On concerns over supply shortages as Iranian exports are gradually shut down ahead of November sanctions. We then expect emerging market flows will continue to be positive as investors appreciate cheaper valuations and have also begun to differentiate between emerging market countries with structural problems and those without. This is prompting selective flows back into markets such as Vietnam where the medium to long-term outlook looks very positive. And driven more by structural secular factors than by cyclical factors.   

Given this, we think the market has recovered its mojo. And that the VN index will continue to move higher for the time being. We, therefore, see an attempt on the 200-day MA soon and we expect the market will eventually break through. Before moving higher. And while we don’t see equities returning to the year high, for the time being, we do see 10-15% upside for equities between now and year-end. In our next installment early next week, we will discuss sectors and stocks. 

Asian shares & major currencies – Asian shares were higher again today as Wall Street made strong gains on Thursday. As for currencies, the US$ (93.905) fell back further today when measured against its trade-weighted ICE index. Then the Euro (1.1792) traded higher; Pound Sterling (1.3217) slipped after recent gains; the Japanese Yen (112.65) fell back while the Chinese Yuan gained a little ground today (6.8403). 

Oil prices move higher – Crude oil traded higher today with the active month WTI futures crude oil contract trading at US$ 70.77 in late Asian trade. Trump urges OPEC to cap prices once again and the market recovers quickly. 

U.S. President Donald Trump overnight urged OPEC to lower crude prices ahead of its meeting in Algeria. Suggesting that as they existed under a U.S. security umbrella they somehow should guarantee stable oil prices in return. This is clearly meant for domestic consumption as an overseas audience is unlikely to take it seriously. However, it raises the possibility that OPEC and its allies will want to carefully stage-manage the optics of the meeting to ensure that they don’t take any blame for higher oil prices. Which are anyway the direct result of U.S. sanctions on Iran. 

In any event, as mentioned here before we have always doubted OPEC and its allies ability to offset a large drop in supply. And while the current run on oil prices may be periodically damped down by rhetoric such as seen overnight the reality on the ground is that we have an emerging supply shortfall in oil. Which will likely not be resolved until sometime in the 1H of 2019.  

In global macro and general news – The Japanese authorities released August nationwide core consumer price index (CPI), which excludes fresh food costs, rose 0.9% y/y versus a 0.8% y/y increase in July. Then overall consumer prices, which include fresh food costs, jumped 1.3% y/y, accelerating from a 0.9% y/y increase in July. However, both numbers are still well below the official 2% target set by the BOJ and indeed, inflation measures in Japan have really struggled to get traction despite zero interest rates and the active QE program. 

This isn’t surprising given the weak state of consumer spending against a backdrop of declining population and the fact that until recently wage growth was anemic. Meanwhile the Fed and the ECB have begun to unravel their QE programs which will eventually force the Japanese to do likewise. Which will make the 2% inflation target rather moot. 

Then, in other Japanese data, the Nikkei Japan Purchasing Managers Index for manufacturers showed a preliminary reading of 52.9 in September, up from 52.5 in August. New orders came in at 53.3, up from 52.4. Business capex has been very robust for several months and this is yet another sign that the engine of growth continues to be the manufacturing sector. Despite some evidence of a slowdown in trade. 

President Trump in comments made on Fox news overnight reiterated his tough stand on the U.S. trade relationship with China. And seems prepared to slap tariffs on the final US$ 267 billion worth of Chinese exports to the U.S. that are still tariff free which includes mobile phones, shoes and clothes. He also confirmed that tariffs on the recent US$ 200 billion worth of goods will increase to 25% early next year, giving U.S companies some time to transition their supply chains away from Chinese suppliers. 

The informal EU summit held in Salzburg Austria has cast some doubts over the possibility of an agreement between the U.K. and the EU concerning Brexit in the limited time available. The EU has now formally rejected the so called “Chequers agreement” which was the U.K. governments painfully reach proposal. As it was seen as compromising core EU principles. This now leaves just over a month for the U.K. to redraft some ideas and win cabinet approval before presenting them to the EU negotiating team. All the signs are that this will go down to the wire with a roughly 50% chance that the U.K. may tumble out of the EU without any formal agreement in place. Which would obviously seriously ruffle global equity markets if it happens.

 

HCMC – The VN index fell today as turnover expanded to VND 9,006.08 billion or US$ 387.44 million. The index lost 0.18% and closed at 1002.97. 127 stocks up while 167 stocks down. And 6 stocks went to the ceiling while 10 stocks dropped to the floor. Foreigners accounted for 32.85% of the buying value and 41.53% of the selling value.

Foreign buying rose in actual terms and also in percentage terms. While foreign selling also rose further in actual terms and also in percentage terms. Foreigners turned net sellers to the tune of VND 781.51 billion worth of shares in HCMC. And we saw thirty seven transactions in the put through market today.

Foreigners were active buyers of VHM; VNM; HPG; VRE and NVL. They also actively sold VHM; MSN; NVL; HPG and VRE. The put through market was less active today with two enormous; six jumbo; two large and some medium sized & smaller deals accounting for 14.68% of total turnover.

We saw 6,848,000 shares of VHM; 5,517,420 shares of ROS; 700,000 shares of PDN; 749,900 shares of BMP and 1,328,170 shares of GEX going through. Foreigners were more active in the put through session in the VHM & BMP deals and then ten other smaller deals today in the market.

E1VFVN30 was up 1.5% today closing at VND 16,200.

Hanoi – The Hanoi market went up today while turnover came to VND 969.94 billion or US$ 41.73 million. The HN index was up 0.64% to close at 115.8. 78 stocks up while 88 stocks down. And 17 stocks went to the ceiling while 17 stocks dropped to the floor. Foreigners accounted for 1.64% of the buying value and 2.53% of the selling value.

Foreigners were net sellers to the tune of VND 8.64 billion worth of shares. And we saw sixteen medium and small sized deals today during less active put through session in Hanoi accounting for 1.59% of total turnover.

We saw 1,086,000 shares of SHB; 220,000 shares of SHN and 274,037 shares of S99 along with some smaller transactions in the put through market today.

 

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