VN-Index poised to breach historical peak

The benchmark VN-Index, which is based on the performance of stocks on the Ho Chi Minh Stock Exchange (HoSE), registered five consecutive gaining sessions in the first week of the year.

The index gained a total of nearly 64 points in this period, or 5.8 percent, to 1,167.69 points by the end of last Friday.

In its most recent report, brokerage MB Securities said that the market is showing a clear uptrend that could see it conquering the 1,204 point-threshold this week. This is the VN-Index’s historical peak, reached in April 2018 when the stock market was supported by stable macro-growth and supply chains relocating to Vietnam amid the U.S.-China trade spat.

"There is no question about whether the stock market hits this milestone, the only issue is when," the report said.

Le Quang Minh, head of Research at Mirae Asset Securities Vietnam, believed this was likely to happen within the next two or three sessions. Domestic cash is still the key driver for index growth, while blue chips, especially in the recovering real estate sector, like VHM of Vinhomes, VIC of Vingroup, and NVL of Novaland, are expected to lead gains.

Concurring with this analysis, Lu Hui Hung, general director of Phu Hung Fund Management JSC, said equity markets were being fueled by unprecedented amounts of "cheap cash" (low interest capital) in the economy, which has completely absorbed foreign investors’ consecutive net sells in the previous months.

"Vietnam's stock market also has a more attractive valuation in the region. This, in addition to MSCI’s adjustment to Vietnam’s weight in the MSCI Frontier Markets Index from 25.2 percent to 30.64 percent, will motivate many investment funds to pour capital here", he said.

Fund management company Asia Frontier Capital had also said in its third quarter report that the VN-Index was undervalued compared to its peers, with its’s price-earnings ratio on August 31 being 14.7 against 27.3 for the U.S.’s S&P500 Index and 21.3 for Thailand’s SET Index.

The VN-Index will continue to grow until this cash flow reverses. Hitting 1,200 points is virtually a certainty, and the index can even go as far as 1,400 points," Lu said.

Based on technical analysis, Lu said that the long-term bottom of the VN-Index was established at around 650 points in April last year, at the peak of the Covid-19 pandemic. The index is currently in a medium- and long-term upward cycle which will last at least for this year.

However, after hitting 1,200 points, the index would likely see strong profit-taking pressure, and could correct 8-10 percent before hitting new peaks. "Investors are enjoying a long uptrend, but always be ready for unexpected risks," he said.

Le Quang Minh of Mirae Asset added that the market has already shown signs of this happening. The last sessions of last week showed that there was mounting selling pressure in small- and medium- caps, which was offset by the heat of the VN30 basket of Vietnam’s biggest caps.

"This selling pressure will build up to explode when the market hits its historical peak, and we will see a strong correction. Investors are advised to observe and cut down on overweight investments to reduce risks, and be careful with smaller-capped stocks," Minh added.

According to brokerage SSI Securities Corporation, profits of listed companies are forecast to rise by 23 percent after falling 17 percent in 2020, while liquidity in the form of investment by retail investors, especially those entering the market for the first time, is expected to drive the market this year.