VN-INDEX could maintain its recovery momentum and retest the historic peak of 1,538 points in April 2022.

The VN-INDEX dropped to the lowest level of 1,446.3 points (-2.9% mtd) on March 14, 2022, due to the fact that Western sanctions on Russia negatively affect the global economy. However, VN-INDEX soon rebounded in the second half of this month, following the strong recovery of the global stock market. On March 23, 2022, the VN-INDEX closed at 1,502.3pts, (0.8% mtd, 0.3% ytd). Total liquidity in the 3 main bourses increased by 14.5% mom (61.2% yoy) to VND31,530bn/session.

A tycoon and several market authorities were arrested over stock manipulation in late-March. These arrests have shaken the market in the short term, but in the long term, this signals the government’s effort to maintain sustainable development and protect the lawful rights of investors.

Meanwhile, economic fundamentals remain solid, with the consumer price index (CPI) rising by only 1.9% yoy in 1Q22, showing that inflation has been well-controlled. For Vietnam, this helps maintain accommodative fiscal and monetary policies to boost economic recovery in the remainder of 2022. Besides, the Vietnamese dong slid only 0.1% against the U.S. dollar and outperformed most regional currencies in 1Q22.

The government plans to start disbursing the infrastructure investment package (under the economic stimulus package) in April 2022. This package is worth about VND113,050bn and the government is expected to disburse it in 2 years (2022–2023). In the immediate future, the above package will finance sub-projects under the North-South expressway project that have completed investment procedures and are ready for implementation.

In addition, the State Bank of Vietnam is collecting comments for a draft decree on an interest compensation package of VND40.000bn (under the economic stimulus package), which is expected to be submitted soon to the government.

Previously, the government has reduced VAT from 10% to 8% for some products since the beginning of February 2022 to promote domestic consumption. This policy will be in effect until December 31, 2022.

VNDirect believes that positive 1Q22 business performance and supportive information from the 2022 annual general meeting could spur a new bull market this April.

As at March 23, 2022, according to Bloomberg data, the VN-Index was trading at 17.1x trailing 12-month P/E (TTM P/E), which is equivalent to the one-year average P/E of 17.2x. VNDirect maintained its FY22/23F earnings growth of 23%/19%, driven by the strong recovery of export-oriented sectors and the bounce back of oil and gas and property. Thus, market valuation is still attractive, in VNDirect’s view, with FY22F and FY23F forward P/E being estimated at 13.9x and 11.8x, respectively (lower than the 3-year historical average P/E of 16.2x). Vietnam’s stock market also looks cheap compared to its peers in the region thanks to strong earnings growth prospects for FY22–23F.

"VN-INDEX could maintain its recovery momentum and retest the historic peak of 1,538 points in April as the stock market would be supported by the 1Q22 earnings results." If it surpasses the historical peak, the VN-INDEX could move towards a 1,560–1,570 point level in the second half of April, "VNDirect said.

The VN-INDEX would find strong support at 1,480-1,500 points.Investors should increase their proportion of stocks if the index drops to the support zone. "We highly recommend stocks from the retail, textile, construction, building materials, industrial parks, and banking sectors due to reasonable valuation and positive business prospects in 2022F," VNDirect said.

At this point, upside catalysts include (1) Russia and Ukraine reaching an agreement on ending the conflict and (2) higher-than-expected 1Q22 earnings results. Potential downside risks to the market include (1) the West announcing additional sanctions against Russia, and (2) rising commodity prices pushing inflation above forecasts.