VietCapital Securities sees good entry point

VCSC believes there is value to being a contrarian in Vietnam given its capital markets dynamics and typical herd instinct of most domestic investors, the broker said in the following note emailed to its customers.

Widespread pessimism weighs on Vietnamese equities, provides good entry point

Widespread pessimism from escalating fears of imminent margin calls and of the impact, on the stock market, of banks’ June 30th deadline to lower their loans to non-production sectors, is weighing on Vietnam’s capital markets. While the Hanoi Index has been on a multi-month downtrend since January forming an all-time low Monday, the VNIndex has only recently broke through its support line, dangerously approaching its two-year low.

On the one hand we’ve seen over the last few trading sessions liquidity grind to halt. On the other, unmatched supply of stocks has eclipsed demand, as buyers have all but disappeared at these price levels. As those who have been investing in this market know, as the market drops like it has recently, there seems to be unlimited supply of shares out there, driving the index to new lows. However, given Vietnam’s capital markets dynamics and the groupthink that characterises most domestic investors, VCSC believes there is value to being a contrarian in Vietnam.

On an operational basis, current market conditions should provide buying opportunities for medium and longer term investors to build positions in coveted stocks. As we’ve seen in the past, when the market does turn and the consensus believes prices will increase, supply of those same stocks dries up instantaneously as sellers wait for better prices.

On a peer valuation basis, at average PERs of 8.9x on the VNIndex and 6.8x on the HNX Index, Vietnamese equities are trading between a c.40% to 60% discount to their regional emerging market peers. Dividend yields in Vietnam are c.50% to 100% higher than that of their peers in other emerging markets. On a historical valuation basis, Vietnamese equities are cheaper than they were when the markets bottomed in February 2009, and were trading at c.10.5x PE. At current levels, these valuation metrics should provide investors with an increasingly comfortable margin of safety for investing in Vietnam.

Building positions cheaply. Once the market’s sentiment turns, getting into certain stocks can become an onerous undertaking as prices repeatedly hit their ceilings for a number of sessions. Investors intent on building sizeable positions in Vietnamese equities should take advantage of the current market sentiment to accumulate stocks cheaply without worrying of chasing up prices.

The VNIndex dropped 3.48% cf. Friday and to close at 417.82 points only a few points away its two-year low. The HNX dropped to 74.5 points, down 3.22%, marking a new all-time low. Both markets dropped as widespread pessimism had investors’ closing out of their positions. Total trading volume on the HSX increased 18% to 31.7 million shares worth of VND 628.5 billion, but the number of unmatched supply of stocks jumped threefold to 11.4 million shares. The market closed with 34 gainers and 206 laggards. All of the ten largest market cap companies were in negative territory.

Foreign investors net sold 494,680 shares worth of VND30.4 billion for the 2nd consecutive day. Proprietary trading desk continued to net buy VND1.6 billion worth of equities. Noticeably, SSI and VNM are the two tickers that were bought the most by the prop trading desks.

Tags: VietCapital Securities