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Market Strategy April 2023 – Stay defensive, stay selective

Strategy Note 31/03/2023    210

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VN-INDEX closed at 1,052.3 pts (+2.7% mtd, +4.5% ytd) in Mar-23. We believe that the increase could come from the following reasons: (1) FED has delivered a less hawkish message on monetary policy amid global banking turmoil, (2) SBV cut some key policy rates in Mar 14, (3) strong inflows by foreign investors mainly from Fubon ETF. Average trading value of three bourses fell 12.4% mom (-67.9% yoy) to VND10,147bn in Mar. Foreign investors returned to net bought of VND3,345bn in Mar-23 (vs net sold of VND264bn in Feb-23).

FED delivered less hawkish message on monetary policy. During its Mar meeting, FED unanimously decided to raise the target range for the  Federal funds rate to between 4.75% and 5%. In addition, the recent turmoil in the banking system has caused FED to no longer declare “constantly raising interest rates” as appropriate. FED said it was open to the possibility of one more rate hike and no interest rate cut in 2023. However, the market forecast is somewhat more aggressive on easing than FED’s view. Specifically, the market now expects no more policy rate hikes in 2023 and FED will cut rates as early as the second half of 2023 due to the possibility of a recession.

We saw a reversal in SBV’s monetary policy. On 14 Mar 2023, SBV decided to cut some key policy rates from 0.5% – 1%, including the rediscount rate, the overnight lending rate by the SBV to credit institutions and the maximum short-term lending rate in VND of credit institutions for certain economic activities. We expect the SBV to reduce other policy rates such as the 6-month VND deposit rate ceiling and the refinancing rate by 50 basis points if FED shows clear signs of stopping the policy rate hike.

We expect deposit rates to keep on downtrend toward year-end, following: (1) weak credit demand, (2) ample liquidity thanks to aggressive publish investment disbursement, and (3) a possibility of further policy rate cut in 2Q23, in our view.

Recovery around the corner. Looking back at history, loose monetary policy and falling market interest rates are quite strong catalysts for the stock market. For  April, VN-INDEX was supported by (1) falling domestic interest rates and (2) capital inflows from foreign ETFs. However, the outlook for 1Q23 earnings is quite negative amid low economic growth, which is a hindrance to the market’s upward momentum. Due to mixed catalysts, we expect VN-INDEX to keep trading in a narrow range from 1,030-1,110pts in Apr 2023. Long-term investors may consider buying part of the portfolio when interest rates are falling, while short-term investors should patiently wait until the market form a clear trend. Upside catalysts include (1) more dovish on monetary policy from FED, and (2) more economic support from the government. Downside catalysts include negative-than-expected market earnings growth in 1Q23F and global banking crisis risks

Market strategy. There are selective opportunities related to stocks that benefit from the story of increasing public investment and stocks with better earnings growth or turning from negative to positive in 2023F. Our high-conviction stocks for Apr include: C4G, PC1 and TCB.

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