November 19, 2018 04:30

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Securities fluctuation in the new situation

10:33 | 14/06/2018

VCN - The securities market is expected to continue fluctuating in June when the market structure is changing strongly before the emergence of a series of new securities

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securities fluctuation in the new situation
Many investment funds have to rebalance their lists by selling their holdings to buy new shares. Photo: N.Hien.

Profit Taking

After a steep fall in May, due to profit taking, together with the net selling by foreign investors, the VN-Index has had six consecutive sessions of increase points in June and now has reached over 1,040 points, equivalent to an increase of approximately 7% versus the end of May. In addition, many securities have increased 20-30% compared to the previously established bottom prices such as DAT, FDM, ICF, FCN, HSG, NKG. Of which, the increase of HSG was due to the capital flow falling to the bottom when securities dropped dramatically. Meanwhile, FCN increased sharply after the information on the divestment in a series of its subsidiaries, and the FCN’s revenue was estimated to rise sharply over the same period last year.

Despite recovery, the market liquidity is still at low level, around VND 5,000 billion per session. Previously, the average liquidity in May was only VND 7,160 billion per session, if excluding the record trading of VND 30.716 billion of VHM shares, the trading value of the whole market reached only VND 5,764 billion per session, which was the lowest level in the past 7 months. A recent report from SSI Securities revealed that the decline in liquidity could be due to part of the capital flows had shifted from the base market to the derivatives market during the high volatility period towards a less positive direction. In May, trading value of the derivatives market was 2.3 times higher than that of April, reaching an average of VND 7,400 billion / session and surpassing the base market. In the record session on 30th May, 114,000 contracts were traded, equivalent to a contract value of VND10,446 billion. The downside status has facilitated futures contracts to take advantage of two-way trading and T + 0 trading compared to the base market.

Back to the trading of foreign investors, the continual net selling of this sector has increased the pressure on the market. Only for the order matching transactions, foreign investors were net sellers of VND6,600 billion in May, up sharply from VND3,000 billion in April. Thus, foreign investors have been net sellers for 4 consecutive months with a value of up to VND 12,800 billion. Thanks to a large transaction volume, remarkably the transaction of VND 28,500 billion of VHM shares, foreign investors remained a net buyer of VND35.1 trillion.

According to experts of VDSC, the 3 reasons to increase net selling by foreign investors were: the restructuring of the list from securities, of which prices have risen into new listed securities; the high increase of US 10-year bond yields, which raises the fear that the Fed would increase interest rates this year, and the last reason is US-China trade war and geopolitical instability in the world.

However, there are still bright point which is ETF funds are actively buying in recent times. In May, three ETF funds continually increase their capital and bought a net of VND 386 billion. Although the VanEck fund was withdrawn, the VFM VN30 and DB FTSE Vietnam ETF funds were significantly raised, helping ETF flows increase significantly from May.

Risks in the new situation

Vietnam securities market is undergoing a period of redistribution of assets when a large volume of securities listed in a short time, changed the market. VHM and TCB were listed at VND246 billion and VND149 billion respectively, which were typical listing deals in recent time. In the coming time, many securities are going to change the stock exchange such as, ACV, HVN, BSR, GVR, POW, PGV, or some other companies are going to participate in the exchange such as, VEAM, Thaco with estimated value of more than VND 500,000 billion. These securities will have a significant impact on the market’s structure and proportion of indexes.

Many investment funds had to re-balance their list by selling their holdings to buy new shares. This also partly explains why foreign investors continuously were net sellers on the securities market in the past time. This activity has put a lot of pressure on the listed securities as well as the general indexes in a systematic manner.

The emergence of many large securities also strengthens the concentration of the market into the key securities. After TCB’s listing, the top 10 securities, VIC, VHM, VNM, VCB, GAS, SAB, TCB, CTG, BID and HPG, accounted for 57.8% of the total market capitalization; Top 20 securities accounted for 78% of HOSE. This concentration rate is much greater than that in regional markets such as Thailand, Indonesia, Philippines, with proportions of 53%, 59% and 66% in the top 20.

With the recent listing of VRE and VHM, 3 Vingroup securities formed a large group with 22% market capitalization and 14% of liquidity. Meanwhile, the group's profit was only 7% of total market profit. Therefore, the Vingroup with a high P / E (price/earnings ratio) valuation of more than 50x has pulled the general valuation of the market and significantly influenced the view of investors. Similarly, bank securities excluding TCB accounted for 22% of the HOSE, accounting for 27.5% of the trading value and 29% of the total profit. The banking sector is currently the largest group operating the securities market and the risks associated with the banking system can be considered as a common risk of the securities market.

With an analysis from Mr. Nguyen Duc Hung Linh, Director of Retail Research and Investment Advisory of Saigon Securities Inc., (SSI), he said that the two groups of securities do not represent the economy but have the ability to dominate and influence the securities market, thus, the securities market or securities indexes can hardly be considered as a economic thermometer of Vietnam’s economy.

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However, the positive point is the margin outstanding debts have not been a problem. According to unofficial statistics from VDSC, margin outstanding debts decreased significantly at the end of May. Along with that, the capital flow at bottom has appeared in the last sessions in May and is expected to continue to support the market in the coming time. But this point is not enough to confirm the market's stable recovery in the short term. However, with positive signals such as foreign investment flows tending to return, and margin outstanding debts having decreased, the psychology of investors began to be more optimistic, the signs of a recovery in the short term will happen. However, the market is forecasted to fluctuate more in June.

After a steep fall, the market's valuation has been returned to a more reasonable level, market price growth is more suitable with profit growth. Specifically, the P / E (price/earnings ratio) of VN-Index fell from 21.5x to 18x. In some key securities, valuation tends to decline significantly. Particularly, the P / E ratio of the banking sector dropped from 20.2x at the end of February to 13.5x at the end of May; real estate sector fell 16.7x, and oil and gas sector fell 16.7 x. As a result, the valuation of leading securities have generally been brought to a reasonable level, accelerating the purchasing power to create recovery sessions in early June.

By Nguyen Hien/ Huyen Trang