Market Strategy May 2023 – Look for growth engines

VN-INDEX closed at 1,041.4pts (-2,2% mtd, +3,4% ytd) on April 24 2023. We believe that the decrease could come from the following reasons: (1) Investor sentiment was cautious due to 1Q23 disappointing earnings results, (2) Vietnam’s PMI fell to 47.7pts in March 2023, indicating a contraction in the manufacturing sector and a gloomy view of economic growth, (3) foreign investors returned to net sold of VND1,210bn in April 2023 (vs a net bought of VND3,037bn in March).

U.S. inflation cooled down, Fed may stop raising interest rates after the meeting in May. 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. Therefore, we expect the SBV to continue to lower the policy rates in the second half of 2023.

We expect more policies to be issued to remove constraints for business growth. Circulars 02 and 03, issued on April 23, 2023 provide banks with a legal framework to restructure debt and support liquidity for the corporate bond market. At the same time, the Government has just issued Decree 12/2023/ND-CP, which is effective from April 14, 2023, allowing an extension of tax payment time for some types of taxes.

The SBV may continue to lower the policy rates in the second half of 2023. As the risk of a recession in the US economy is increasing, the market expects the FED to stop raising the policy rates after the meeting in May and to cut the rates in the second half of 2023. In this case, the pressure on the exchange rate and domestic interest rates will continue to cool down. The SBV may consider reducing the policy rates further, including refinancing rates, the maximum interest rate for deposits in VND with terms of less than 6 months, etc., by 50 basis points in the second half of 2023 (highly to happen in 3Q23).

The market’s correction opens up good opportunities to buy and hold value stocks for the long term. We believe the disappointing 1Q23 earning results have been reflected in the recent slump. We expect the recently issued policies, such as Circular 02-03 or Decree 12/2023/ND-CP, will help improve investor sentiment and capital inflow to the stock market. The 1,000-1,030pts range will be strong support for the VN-INDEX, in our opinion. If the index falls to this range, it will open up an attractive opportunity to buy and hold stocks for the long term. Upside catalysts include (1) a more dovish monetary policy from FED and (2) the soon-to-be-issued policies such as the revised Circular 16 or the Resolution on VAT reduction. On the contrary, the downside catalyst is a possible recession in the US and Europe.

The market strategy includes: the story of public investment, improving outlook of the baking sector thanks to recently issued policies and strong earnings growth of selected stocks. Our high-conviction stocks for May are: MBB, PC1, PVD, SZC, TCB and VRE.

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