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Market Strategy May 2022 – Is this time for bottom-fishing?

Strategy Note 29/04/2022    83


Vietnam market experienced a sharp decline in Apr. After climbing to 1524.7 pts on 4 Apr, the VN-Index dramatically fell to 1,310.9pts, (-12.1% mtd, -12.5% ytd), the lowest since late-Aug 2021. Recent market sell-off could be attributed to (1) negative market sentiment about the arrests of some large corporate Chairman; (2) concern over global market plummet due to rising inflation and supply chain disruption; (3) and then, large number of margin calls, have weighed on the entire market including good fundamental stocks.

Average trading value of three bourses decreased 12.0% mom (+22.2% yoy) to VND27,957bn (HOSE: VND23,701bn/trading day, -9.0% mom; HNX: VND2,694bn/trading day, -28.1% mom). Notably, foreign investors have turned net buyers with inflow of VND3,439bn in Apr (at as 25/04/2022), versus the outflow of VND3,646bn in Mar.

1Q22 earnings season has kicked off with positive surprises. At as 27 Apr, 529 listed companies, representing 20.7% of market capitalization, have released 1Q22 results. At this point in time, aggregate revenue and earnings of listed companies that are reporting results grew positively 31.5% yoy and 68.1% yoy in 1Q22, respectively.

We see some positive catalysts to support the market in May, including: (1) stronger recovery pace of Vietnam’s economy in the next couple of quarters thanks to solid export growth and state investment ramp-up; (2) more 1Q22 earnings positive surprises altogether with clear FY22 business guidance to be announced in Annual Shareholder Meeting season will enhance investors’ confidence.

However, market concerns have not faded yet (1) the longer-than expected Russia – Ukraine tension and the China ‘s strict lockdown add fears over supply chain disruptions and slower global economy growths; (2) Fed’s more aggressive tightening than market expectation; (3) Vietnam ‘s higher-than-expected inflation might hinder the economic growth and turn the monetary policy to be more hawkish.

Is this time for bottom-fishing? As at 25 Apr 2022, VN-Index was trading at 14.7x trailing 12-month P/E, which is the lowest level since Sep 2020 and 15.2% discount to the peak this year. We expect market earnings growth of 23% yoy and 19% yoy over FY22-23F which brings market valuation to 12.3x FY22F P/E and 10.5x FY23 P/E, much lower than 3-year historical average P/E of 16.2x. We think the stock market valuation is very attractive for long-term investors who seek for good corporate governance companies with strong earnings growths. We believe the recent efforts of authorities in enhancing the equity market transparency will bring confidence for both local and foreign investors and fuel for the market sustainable development.

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