3 main drivers of the stock market

The Research and Analysis Department of Maybank Investment Bank Vietnam (MSVN) has just released its 2024 strategy report with the theme "One year with two phases", forecasting the recovery potential of Vietnam's economy .

Banks are the main driving force

MSVN experts believe that there are 3 main driving forces of the Vietnamese stock market in the coming time:

First, the market has bottomed out since the SBV began cutting interest rates in March 2023. Lower interest rates are expected to continue to support the stock market throughout the new year 2024.

With Vietnam’s exchange rate and inflation still well controlled, and the possibility of the USD weakening in 2024 as the US Federal Reserve’s monetary policy tightening cycle appears to have ended, the SBV is expected to continue easing monetary policy.

MSVN forecasts that the VND will appreciate by 1.7% against the USD in 2024 and by another 0.8% in 2025. In the long term, Vietnam's stable positive current account will be the main driver of VND strength.

Inflation has eased significantly in the US and EU, and with the risk of deflation in China, in Vietnam, average inflation will be around 3.5% in 2024, slightly higher than 3.25% in 2023 but lower than the Government 's target ceiling of 4-4.5%.

Calculations so far show that the Fed will likely cut interest rates by 0.25% three times from the second quarter of 2024. Therefore, MSVN forecasts that the State Bank of Vietnam's operating interest rate will be cut by another 50 basis points in line with favorable external developments.

With 2 base scenarios, MSVN sets the target of VN-Index in 12 months to reach 1,250 points and 1,420 points respectively, helping the Vietnamese stock market to be able to upgrade the market.

Second, public company earnings growth will be the main driver of Vietnam's stock market, with a potential for firmer gains from the second half of 2024.

MSVN experts expect corporate profits to improve steadily throughout 2024, with non-banking sector profits growing impressively this year, but partly due to the low base of the previous year, especially in the second half of 2023.

"The banking industry will be one of the main drivers to increase market profits." - MSVN expert emphasized.

However, MSVN's report this time has reduced its profit growth forecast in the market to 19.9% instead of the previous calculation of 25.6%. This forecast was made on the basis of the possibility that the economic recovery speed will be slower than expected.

3 main drivers of the stock market - Photo 1

Corporate earnings are expected to improve steadily every quarter through 2024.

Third, liquidity will be a big boost to the market beyond earnings growth prospects.

MSVN believes that the State Securities Commission is in the final stages of removing the pre-funding requirement for foreign institutional investors. This is the main obstacle in FTSE's consideration of upgrading Vietnam's stock market from the current Frontier Market to Emerging Market.

For convenience, according to MSVN, the Ministry of Finance needs to amend Circular 120/2020/TT-BTC to only require brokerage firms, custodian banks and foreign institutional investors to ensure that investors have 100% cash from T+1 instead of T+0 as currently regulated. This is a temporary solution for pre-transaction margin requirements while waiting for the implementation of the central counterparty (CCP) mechanism as a long-term solution.

Also according to MSVN, the Vietnamese stock market has been on the watch list for upgrading to secondary emerging market status by FTSE since 2018. Vietnam has met both quantitative criteria but only achieved 8/9 qualitative criteria.

The 100% cash margin requirement is intended to prevent default by buyers and sellers but it limits investors’ ability to turn around capital. Removing this condition would increase investor flexibility, which could lead to unsuccessful transactions. This is a factor that FTSE will consider in assessing the reliability of Vietnam’s stock market before deciding to upgrade.

MSVN predicts that Vietnam's pre-trade margin requirement will be eliminated in the first quarter of 2024 and that it will take FTSE 6-12 months to collect data on failed trades.

In the best case scenario, Vietnam will be officially upgraded in the September 2024 review or later in March 2025. After that, the implementation process will take 6-24 months to fully integrate Vietnam's eligible stocks into the FTSE Emerging Markets related indices.

Two growth scenarios

With the above information, MSVN gives 2 scenarios for the Vietnamese stock market: By the end of 2024, the VN-Index will increase to 1,250 points with the base scenario - mainly driven by the prospect of corporate profits in the economy recovering; or to 1,420 points for the positive scenario - driven by stronger liquidity from the possibility of market upgrade. This increase is 11% or 26% compared to the end of 2023.

In the base case, the market will likely favor businesses that can deliver solid and/or superior earnings growth (MWG, PVD, MBB, STB and NLG) while also choosing more defensive stocks with a net cash position and a history of regular dividend payments.

Hoang Ha (According to tapchitaichinh.vn)

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