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Market Strategy June 2023 – Ready to take the opportunity

Strategy Note 02/06/2023    274


VN-INDEX closed at 1,064.6pts (+1.5% mtd, +5.7% ytd) on May 25 2023. We believe the market’s rally was supported by: A series of supportive policies issued by the Government and the State Bank of Vietnam (SBV) recently have solved some current bottlenecks of the economy as well as gradually regained investors’ confidence in the financial market.

The market doubts that FED will stop raising interest rates in the next meeting. The market leans toward the scenario that FED will continue to raise the policy interest rates by 25 bps in the June meeting right after the May PCE data announcement. Recently, the market has been constantly changing the forecast of the FED’s interest rates, which is potentially risky as the next steps of the FED seem to remain unknown. We believe the possibility of rate raising depends on the U.S. inflation data in May, which will be announced right before the next FED meeting in mid-June.

SBV cuts the policy rates for the 3rd time since the beginning of 2023. On May 23 2023, the SBV decided to reduce some policy rates such as the refinancing rate (down 0.5% points), the ceiling deposit interest rate for 1-month to 6-month term (down by 0.5% points),…Following the SBV’s rates cut, domestic interest rates decreased further. Since the beginning of May 2023, the average 3-month term deposit interest rate and the average 12-month term deposit rate of the private banking group dropped sharply by 57bps and 28bps, respectively; while the average interest rate in the same terms of the stated-owned banks decreased by 80 bps and 40 bps, respectively.

Lower interest rates eased pressure on market valuations. 12-month deposit interest rate maintained a downtrend in May with a plunge of about 0.3–0.4% pts. However, VN-INDEX’s earnings-to-price (E/P) ratio also dropped to 8.0% in May due to the negative earnings growth of listed companies in 1Q23. Combined with the dividend yield of 1.7%, the spread between the market yield and the deposit rate is currently around 2.7%, which is quite reasonable at the moment. However, with the expectation that deposit interest rates may continue to decrease in the coming months while earnings of listed companies can recover from 3Q23 onwards, the market may be revalued at a higher level.

Thanks to a series of policies to solve bottlenecks in the economy, the balance of risks and opportunities in the stock market is gradually tilting to the positive side. We believe that a series of supportive policies that have been implemented lately have pulled the market’s risk/opportunity balance in a positive direction. Smart capital has also begun to show signs of returning to the stock market as the market’s liquidity has gradually improved within the past month. We expect these positive signals to continue, and the VN-INDEX might break through the strong resistance area of 1,080–1,100 pts to move towards higher milestones in June. Investors can take advantage of correction sessions to increase the proportion of stocks, prioritize stocks with growth stories, or benefit from policy and interest rate trends in the coming quarters, such as in securities, banking, public investment, and energy infrastructure.

The market strategy in June: the story of public investment, the approval of the Power Plan 8 and a number of sectors having positive impacts from falling interest rates. Our high-conviction stocks for June are: MBB, PC1, POW, SZC and TCB.

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