In a recent report, Agribank Securities Corporation (Agriseco) said that Viet Nam’s stock market is in the greatest period in its history. With the complicated developments of the COVID-19 pandemic, there are many potential risks as well as opportunities for trained investors in the short term.

The appearance of new variants of coronavirus affects the vaccination roll-out and the recovery of the global economy, especially in developing countries with a low percentage of vaccines administered, including Viet Nam. It will take 4-5 years for the economies of developing countries to recover to pre-pandemic levels, the securities firm said.

The consumer industry is one of the sectors suffering the most from the pandemic.

In June, the total retail sales plunged by 2 per cent month-on-month and by 6.6 per cent over the same period last year. In the second half of 2021, Agriseco Research forecasts that consumer services may continue to be affected by COVID-19 and will struggle to become the driver for economic growth.

The bright spot is the strong recovery of consumer demand in developed countries on the COVID-19 vaccination roll-out. This creates opportunities for export businesses in Viet Nam.

Even though key exporting localities such as Bac Giang, Bac Ninh, Ha Noi, and HCM City are under social distancing measures, export value still jumped nearly 30 per cent in the first half of the year, with components, textiles, seafood, and timber exporters benefiting the most.

However, rising commodity prices caused the import value to increase, which may result in a trade deficit. Agriseco Research forecasts that this situation will continue for the rest of 2021.

Foreign investment inflows are expected to grow strongly in the near future as the formation of superclusters is gradually completed. Viet Nam is a rising destination for FDI, benefitting from the industrial shift from China of Apple, Samsung, and Foxconn. Many related businesses, especially in real estate, industrial parks and technology sectors, stand to gain.

Agriseco Research forecasts that the country’s GDP growth in 2021 will reach about 6 per cent in the scenario that public investments are boosted, which at the same time creating momentum for a strong recovery in 2022 with GDP growth forecast at 7 per cent.

VN-Index may reach 1,400 points

Regarding the stock market, Agriseco said that the main driving factor is inflation, which is currently optimal.

Although it may rise in the near future, Agriseco's statistics show that the inflation zone of 4 - 8 per cent is still a suitable environment for securities, while below 4 per cent/year is the best for securities to thrive. Moreover, low interest rates also help to attract a large amount of idle capital pouring into securities, an investment channel with higher profitability.

After the recent strong correction, the market’s price to earning (P/E) and price to book (P/B) valuations are currently at 16.8x and 2.58x, respectively, lower than the historic peak of 2018 (22x).

Business results in the first six months of enterprises showed growth of about 80 per cent over the same period last year in profit after tax.

Agriseco Research forecasts that by the end of 2021, enterprises’ profit growth will be over 40 per cent compared to last year and reach an increase of 20 - 25 per cent in 2022. Thus forward P/E is about 14-15x, which is a low valuation compared to the past and across the region.

With the current valuation base, Agriseco believes that the VN-Index is being traded at a lower price compared to the correlation of profit, but higher than the historical and regional value.

The expectation of profit growth is an attractive catalyst differentiating the country’s stock market from others.

The market benchmark VN-Index on the Ho Chi Minh Stock Exchange (HoSE) is expected to reach 1,400 points by the end of 2021 and head to 1,500 points in 2022.

The index yesterday rose 1.37 per cent to 1,359.86 points.

However, risks remain as the US Federal Reserve's quantitative easing package may end sooner than expected, causing foreign investment flows to withdraw from emerging markets and frontier markets, including Viet Nam.

On the investment opportunities front, Agriseco Research believes that the selection will be more difficult because the market will be divided by industry groups and stocks. VNS