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Monday, May 23, 2022

Will the stock market bounce back soon?

By Trieu Duong

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The Vietnamese stock market rallied strongly early last week, and the VN-Index repeatedly challenged the 1,500-point level during the week, strengthening the possibility of a new rising streak. However, news about the FLC Group chairman has negatively affected investor sentiment, resulting in a strong correction since the beginning of this week. Will the rising streak last?

Concerns over strict sanctions

After recovering from the 1,440-point level in mid-March but failing to break out of the resistance zone of around 1,500 points in the previous week, the VN-Index plunged at the beginning of the session on March 28, when investors were dampened by news about the high-profile FLC chairman, Trinh Van Quyet, leaking out since March 27.

The sell-off was stronger at the beginning of the afternoon session following a rumor that the FLC chairman was prevented from traveling abroad for a month, starting from March 26, and was questioned by the police. As a result, stocks not just from the FLC family dropped to their floor prices but other speculative stocks as well, mainly real estate ones, and lenders of FLC also plunged, creating a greater impact on the market.

In January, the FLC chairman’s unannounced sale of FLC shares captured public concern and hit the stock market. The State Securities Commission of Vietnam later imposed the highest possible fine of VND1.5 billion on Trinh Van Quyet and banned him from making stock transactions for five months.

With news about Quyet, investors have been concerned over the competent agencies issuing stricter sanctions for future violations, which may send speculative stocks plunging given the withdrawal of money. Property stocks have been hit strongly as they have attracted huge capital over the past few months.

Temporary correction

While many investors have linked the FLC chairman’s case to the cases of former BIDV chairman Tran Bac Ha or cofounder of ACB Nguyen Duc Kien, many other investors believe the market has been reacting excessively to the FLC Group-related news as the impact of Quyet on the stock market is not tremendous. In addition, the handling of stock trading violations to protect small investors will help the market develop more positively in the long term.

Therefore, the correction of the local stock market may be transient and the rising momentum was soon expected to return.

Bad news, such as the Russia-Ukraine conflict and the impact of the Federal Reserve’s interest rate hike, has been reflected in the market over the past month. Investors seem familiar with these concerns. Sudden negative news, such as those related to the FLC chairman, will affect investors but the impact might be short-lived.

Meanwhile, the period with multiple positive information about enterprises, including their profit increase, dividend payment, acquisition and merger plans and annual shareholders’ meetings, is in the offing.

They will be important catalysts supporting stock prices and investor sentiment and boosting market growth as in previous years.

Let’s look back at the local stock market in the past two years. The market plummeted in March 2020 due to the impact of the Covid-19 pandemic but later recovered strongly. A year later, at the end of March 2021, the market also experienced a short correction before growing significantly for four months. This year, investors have been looking for a similar scenario.

Since the establishment of the local stock market, the VN-Index has risen an average of 3.2% in April, the second highest average growth in a year, following the 4.3% in January.

In addition to positive information about the operations of enterprises, the Government’s enhancement of public investment policies and the investment disbursement, which tends to be strongest in April and expectations for the approval of a 2% interest rate support package worth VND40 trillion will bring about more positivity in the market in the short term. The interest rate support package, if passed, will create a positive impact on bank stocks, thereby spreading to the whole market as bank stocks have always been playing a leading role in the market.

The State Bank of Vietnam has issued Decision 422/QD-NHNN on the banking sector’s action plans. The central bank will strive to reduce the lending rates by 0.5%-1% in 2022 and 2023 and deploy policies to offer a 2% interest rate, which will benefit enterprises and the economy. In addition, the increase in the charter capital of commercial banks, over half of whose charter capital is owned by the State, can help boost these banks’ stocks.

Foreign investors’ trading strategies have also shown positive signals as these investors have net repurchased shares, typically in three consecutive net buying sessions with a huge value of over VND2.6 trillion on the Hochiminh Stock Exchange from March 21 to 23. Although the value of foreign investors’ transactions has been modest in comparison with the market’s scale, the move of these investors has always affected domestic individual investors.

Moreover, analysts said the shift of cash flow from bonds to shares has created a positive impact on the global stock market since late March, thus supporting the local market. According to JP Morgan Chase, US$230 billion might be moved from the bond market to the stock market to prepare for the reporting period at the end of the first quarter of 2022 and meet the investment strategies of index funds.

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