VN-Index to feel short-term impacts of US election

Strategic reports of most securities companies this week have warned that the U.S. presidential elections is likely to bring about unpredictable impacts and even shocks on global markets, and Vietnam would not be immune to them.

U.S. stocks have already reacted, seeing its worst week since March, with the U.S. S&P 500 ending last week 5.6 percent lower, and the tech-heavy Nasdaq Composite down 5.5 percent from the previous week in selloffs partly attributed to angst over the U.S. elections.

Investors were particularly nervous that presidential candidate Joe Biden’s victory will cause the indices to turn negative in the short term, said reports from various firms including KB Vietnam Securities, Rong Viet Securities, and Mirae Asset.

Although it not entirely the result of U.S. equity market movements, Vietnam’s benchmark VN-Index also ended a 6-week recovery trend last week by plummeting 4.38 percent over four consecutive losing sessions, from 961.26 to 919.08 points, marking its biggest plunge in three months.

Daily trading volume on the main bourse also plunged, falling below VND6 trillion ($260.08 million) per day from a steady VND8-9 trillion last month.

These movements show caution from investors, who are restricting buying and selling before a major event of global influence, explained Dong A Securities (DAS) in a report.

Historical data shows that U.S. market often fluctuates strongly in the presidential election year because investors will constantly re-evaluate candidates' chances of victory, and this year’s election could create even more chaos than usual with the Covid-19 epidemic delaying the counting of votes, DAS said.

The company pointed to the 2000 elections when Al Gore and George W. Bush were the main contestants. It took four weeks to count all the votes after election day, during which the S&P 500 Index lost 5 percent.

If President Donald Trump gets re-elected, Wall Street will likely see an initial jump as Trump has often used the stock market as a measure of the effectiveness of his policies, while the U.S. economy could see major disruptions if a new president takes office, said KB Vietnam Securities (KBSV).

And because movements on Vietnamese equity markets are strongly influenced by external uncertainties, it will likely fluctuate strongly in the short-term, regardless of whoever is elected, something that can be exacerbated by the earnings’ season, when listed companies release their third quarter financial results, the KBSV report said.

"The factors affecting the stock market in November will mainly be external, so in a negative scenario, the VN-Index could very well fall as far as 875-880 points, while it would fluctuate between 900-933 points this week," said analysts with the MB Securities Company.

After its corrective period in late October, the market has moved into a state of "risk reduction", the MBS report said, meaning that those trying to avoid risks associated with U.S. elections will withdraw from the stock market and move their money into safer channels such as bonds, gold, USD, Japanese yen and cash, while those holding onto their positions could see short-term losses.

The VN-Index edged up 0.19 percent Tuesday to 935.41 points, its third consecutive gaining session since its October-end corrective period.