According to Fiingroup, if excluding the real estate and financial groups, the P/E ratio is at a historical peak, the market is no longer cheaply priced.
In the 2024 Macroeconomic and Stock Market Outlook conference, Fiingroup (a company specializing in providing financial data analysis services, industry analysis and credit rating services) reported that the total market valuation P/E (price to earnings ratio) as of November 8 was 13.1 times. This figure is lower than the average of the 2015 period (about 14.2 times). Therefore, the current popular opinion is that stocks are cheap and attractive.
However, Ms. Do Hong Van - Head of Fiingroup's stock data analysis team - noted that in the market, the majority of investors are stock investors, not index investors. "Therefore, investors need to look deeper into industry and stock classes," she said.
Fiingroup calculated that if we exclude the financial and real estate groups, the current P/E is around 23.5 times - in the historical peak of the market. This figure is even higher than the non-financial P/E in the favorable market period in 2021.
The stocks with high valuations are all in the industries that will catch the cash flow wave in the coming time, such as steel, public investment, chemicals - fertilizers, and consumer goods. Most of these are small and medium-cap stocks, the two groups of stocks that have led the market since the beginning of the year with performance of 27.1% and 24.7%, respectively.
"We need to be honest with each other that we are holding stocks at a peak valuation," said Ms. Van.
The valuation level, excluding the financial and real estate sectors, is at a historical peak. Source: Fiingroup
The above assessment provides a different perspective from most previous market analysis reports by securities companies and observers. All parties calculated the P/E ratio at the end of October and the beginning of November at around 11-13 times. Therefore, the general conclusion is that the current valuation is attractive compared to other markets in the world .
Commenting to VnExpress , the director of analysis of an investment consulting company said that dividing valuations into financial groups, real estate and other industries is reasonable to look at different areas of the market. In the US, the S&P500 index also has a large differentiation in valuations of industry groups according to each period, for example, currently, the technology group is highly valued while other groups are quite cheaply valued in historical correlation.
However, this division helps shape investment strategies suitable for each period in relation to the portfolio rather than assessing the whole market. If divided in this way, in Vietnam, the majority will be highly cyclical industries (such as steel). Therefore, in the most difficult periods in terms of profits, there will be the highest P/E and this result is only reflecting the past. In fact, the P/E index of these groups often decreases very quickly when the economy or industry cycle recovers.
According to experts, in difficult economic times and when profits fluctuate greatly, P/E valuation is not as reliable as P/B (the ratio of a stock's price to its book value), which is less volatile. Therefore, P/B valuation should be considered in addition to P/E to comment on the cheapness of the market.
"Overall, the valuation of VN-Index is still considered relatively cheap," said this analysis director.
Investors trade stocks at a company in District 1, Ho Chi Minh City, January 2020. Photo: Quynh Tran
Regardless of technical factors, an analyst at a Hanoi-based securities company said that investors also sense that the market is no longer cheap through many parameters such as slower-than-expected GDP growth, slow disbursement of public investment capital, poor credit lending to the economy when demand from businesses is low, and total after-tax profit in the third quarter is still declining.
Previously, many investors had high expectations for the above factors, pushing the stock market up continuously, with many stocks increasing 2-3 times. According to this analyst, the unexpected actual figures led to the conclusion that the market valuation was at its peak.
With the view that there are no more "cheap goods", Fiingroup experts believe that value investing is no longer an important method. For stocks to return to a more attractive price, the VN-Index needs to fall sharply, or corporate profits need to grow strongly.
Therefore, Ms. Hong Van advises investors to focus on stocks with good growth prospects and business results to avoid the risk of paying the price for excessive profit expectations. This unit positively evaluates the groups of information technology, oil and gas, seafood, garment, steel, chemicals, industrial park real estate, and stone mining.
Siddhartha
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