Sideways movement in the medium term

When assessing the stock market's performance in September, Mr. Nguyen Xuan Binh, Director of Analysis Department, and Tran Duc Anh, Director of Macro Department at KB Vietnam Securities Corporation, identified exchange rate pressure as the main risk and negative factor impacting the market. This is owing to external causes, especially the Federal Reserve's rather hawkish monetary policy in the United States.

This risk will continue to weigh on the market in the fourth quarter due to two factors: reducing inflation, although at a slower rate than most analysts estimate, and the Fed's slightly hawkish approach. Even while the Fed feels there is no need for another interest rate rise for the time being, it also signals that high interest rates may stay for a longer length of time.

The most notable aspect in the market's performance in the approaching quarter, following a protracted positive recovery period from late 2022 to early September 2023, is that the VN-Index reached the resistance zone around the 1,225-point level, plus or minus 20 points.

The key threshold for responses is about 1,250 points, which is the resistance zone's top limit . From then to now, the VN-Index has witnessed a considerable fall in September, with two items to consider: First, the VN-Index breached the short-term low created in August during the September fall. This is a rather strong technical indicator, signaling that the VN-Index's short-term rising trend has ended.

We must be wary of potential reversal zones. Following a recent short-term bottom and subsequent recovery, the VN-Index is once again nearing resistance zones. In terms of potential reversals, investors should be careful at the 1,160-point mark, plus or minus 10 points, and the 1,220-point mark.

Looking at the broader picture after the dramatic collapse in 2022, the stock market has returned to a recovery trend that will last until September 2023. During this time, the VN-Index may fall further and test lower support levels. Looking at the big picture, the medium-term trend is still unclear, and it is now thought to be drifting sideways.

"We may anticipate the market to restore equilibrium and have possibilities for recovery near support levels throughout this medium-term sideways pattern. There are two critical support levels to keep an eye on: the first is around the 1,055-point mark, and the second, deeper, is around the 990-point mark, plus or minus 20 points. These support levels are essential in determining if the VN-Index can sustain its medium to long-term bottom at 870 points. As a result, while the second support level is strong, it is not certain that the VN-Index will achieve it. When the VN-Index hits these levels, investors can decide whether to reinvest or wait for the market to rebound", said Mr. Nguyen Xuan Binh.

Macro Foundation Not Supportive

Looking back on the first nine months of the year, the major support for the stock market's recovery came from a fall in interest rates, which resulted from objective factors such as low inflation, low exchange rates, and the State Bank of Vietnam's (SBV) supportive policies.

However, GDP growth in the first nine months was only 4.2%, and earnings at publicly traded corporations fell sharply in the first two quarters of the year. The basic macroeconomic reasons did not greatly support the market, and the key driver of the market's favorable performance was the fall in interest rates.

It is vital to note that the downward trend in interest rates appears to be facing headwinds. The primary causes behind this are as follows: First, we had very low inflation in the first half of the year, but monthly inflation rates were rather high from July to September, with rises of 0.7%, 0.9%, and 1.08%, respectively.

Inflation rates have also climbed dramatically in the last two to three months in terms of the entire year. While this level of inflation may not pose a problem in 2023, with a low base and a growing rate of inflation, Vietnam's year-on-year inflation might approach 4% in the early months of 2024. This danger has been identified by the SBV, which is one of the reasons for the more cautious monetary policy.

The second factor is due to currency changes. Since August, the exchange rate has increased dramatically due to two factors: the US dollar has been heading upward (now about 106 points), and the SBV and the Fed have differing monetary policies. As a result, Vietnamese dong interest rates in the interbank market are substantially lower than US dollar interest rates, sparking speculative trading.

As we enter the last three months of the year, we must wait for more fundamental elements, such as macroeconomic recovery or business success of publicly traded businesses, to be reflected in their financial reports. Interest rate expectations should be kept in check.

However, there is reason to be positive about the introduction of the KRX trading system. The Ho Chi Minh Stock Exchange expects the KRX system to be operational by December 25th. It will have two good effects: it will allow us build a central counterparty clearing partner, which will be an important step for Vietnam's stock market to improve and attract global investors. Along with it, the market may provide new products, particularly those connected to T0 trading, which can boost market liquidity as well as brokerage companies' financial outcomes.

Shares to pick up

If difficulties relating to currency rates and decreasing inflation alleviate, the State Bank of Vietnam's monetary policy is likely to return to a significant easing trend, similar to the beginning of the year, in the fourth quarter of 2023. In that circumstances, the stock market will be a very appealing investment option.

The second category includes export-related stocks. According to recent statistics from the General Department of Customs, Vietnam's exports have been booming, especially given the decline in inventories of large US and EU corporations and the approaching demand for consumer products, house improvements, and shopping in the last months of the year. This contributes to a rise in import demand in Vietnam. As a result, export-oriented firms such as textiles, fisheries, and forestry are predicted to rise in the fourth quarter.

Furthermore, in the case of the Israel-Palestine dispute, if tensions escalate and create a dramatic surge in oil prices, investors should keep an eye on oil and gas equities.

Furthermore, the public investment narrative is continually evolving and has a beneficial influence on the stock values of linked businesses like as construction, building materials, and so on.

Each story will serve as a trigger, causing stock price moves in certain industries to be more positive than the overall market. This may be the destination for investors' stock holdings.