Liquidity decreases, but likely to improve in the near future

17-Sep-2019 Intellasia | Dau tu Chung khoan | 6:02 AM Print This Post

The stock market in first sessions of September recorded a sharp decline in liquidity, and the score was going down. This is a risk but also an opportunity for investors to accumulate good stocks.

Market liquidity in September was at the lowest level since the beginning of the year

Closing the session on September 10 at 970.26 points, Vietnam Ho Chi Minh Stock Index (VN Index) lost 1.4 percent of the score in more than a week of trading in early September. This reduction was inconsiderable compared to the fact that within one current year, VN Index frequently fluctuated from 10 to 20 points in a session. However, the fluctuation of scores in early September might not reflect all adverse movements of the market.

For example, on September 10, VN Index dropped by only 3.9 points (-0.4 percent), but the overall trading was much more gloomy with 201 stocks on the Ho Chi Minh Stock Exchange (HOSE) closing in the red, nearly doubled the number of gainers (107 codes).

In the VN30 portfolio, up to 21/30 stocks decreased, in which PNJ, BVH, MWG, SAB fell over one percent.

Remarkably, market liquidity continued to decline. According to trading statistics on HOSE, the average matched trading volume in August 2019 reached 133.5 million shares per session, equivalent to the average trading value of 2.973 trillion dong per session. In the first six sessions in September, the average trading volume and value reached only 113 million shares and 2.3237 trillion dong, down by 14.9 percent and 21.8 percent respectively.

Previously, the statistics of the State Securities Commission of Vietnam (SSC) showed that the average trading value in the first seven months of 2019 decreased by 40 percent compared to the same period in 2018. The liquidity picture was also reflected clearly through business results of brokerage revenue of securities companies in the first half of this year decreased from 40 percent to 60 percent over the same period.

Some of the following factors were believed to be the main causes leading to a decline in liquidity in the stock market.

Firstly, the world political and economic instability such as US-China trade war, Brexit event, US-Iran tensions, etc., led to concerns that the stock market would be negatively affected first, so there was a move to safer investment channels.

Secondly, foreign capital flows decreased in net buying, even net sold strongly in the past two months, affecting both supply and demand of stocks and domestic psychology when many domestic investors tended to look at foreign capital flows to invest, thereby impacting market price and liquidity.

Thirdly, after the rally in 2017 and Q1/2018, the market entered a period of decline, making speculative cash flow and swing trading, which was the main factor creating liquidity, gradually ‘cool down.’

Fourthly, several investment products with high-profit opportunities such as derivative securities, covered warrants, especially corporate bond with a yield of 10 percent to 15 percent per year were constantly offered for sale and attracted big cash flow.

In early September, foreign cash flow more balanced after a period of net selling. Many global stock markets regained momentum. Howerver, VN Index dropped and the liquidity fell to the lowest level since the beginning of the year, making many investors to be cautious and restrict buying.

Specifically, the average matched trading value from over 2.4 trillion dong in early September to the sixth session and September 9 was only over 2 trillion dong, equivalent to the transaction level of January 2019, the lowest average liquidity in the past nine months.

On September 10, the situation of price decrease occurred largely, triggering the bottom-fishing cash flow, but the matched value was only 2.721 trillion dong, lower than most of the previous sessions.

The impatience of investors combined with the pressure of mortgage disbursement (margin) due to the decline in stock prices made the possibility of the market recovering in the short term evaluated not so high. There were comments that the VN Index might drop to 940 to 950 points in early June, even return to 900 points as early this year.

Finding a fulcrum for the market

The stock market is one of the fastest growing investment channels. Hundreds of billion dong can be disbursed or withdrawn in just a few sessions.

High liquidity increases the attractiveness of the market but makes stock prices often fluctuate quickly and sharply, creates both opportunities and risks for investors.

Looking back statistics, when VN Index was at the level of 1,170 points in March 2007, the trading value always reached over 1 trillion dong per session, some sessions amounted to 2 trillion dong, rising two to three times after a few months.

On February 24, 2009, VN Index dropped to 235.5 points, the trading value was only 177 billion dong. Nearly three months later, the market recovered, the trading value in April 2009 exceeded 1.5 trillion dong, in May 2009 exceeded 2 trillion dong and in August 2009 surpassed 3 trillion dong.

In early April 2018, VN Index set a new peak at more than 1,200 points, the average transaction value reached over 8 trillion dong per session. However, in May 2018, the transaction value was below 4 trillion dong per session, corresponding to a decrease of over 50 percent.

Comprehensively, cash flows into the market always exist and seek for profit opportunities. It is normal for cash flow to rush into the market to increase liquidity in the period of positive stock price and to draw during an increase in risk.

It is expected that the current liquidity was low but the cash flow could quickly return if given the chance. Currently, the real estate market showed the sign of slowing down; gold and foreign currency increased but hidden risks; savings channels and bonds generally had low profitability.

Meanwhile, the stock channel still has the potential for great profit opportunities, reflected by hundreds of stocks with double-digit profitability since the beginning of the year.

In fact, in the first half of September, the market lacked support informations and was influenced by the Q3/2019 portfolio restructuring of of two foreign ETFs, Market Vectors Vietnam ETF (V.N.M) and FTSE ETF due to the portfolio holding many large-cap stocks.

In the second half of September, the market is expected to have supportive news such as the US Federal Reserve System (Fed) is likely to cut interest rates at its meeting on September 18-19.

Earlier, Bloomberg statistics showed that since the beginning of the year, worldwide central banks had 32 interest rate cuts. Decreasing interest rates will support foreign capital inflows into emerging markets, including Vietnam, in the context that the USD/VND exchange rate is quite stable, creating confidence for foreign capital flows.

Especially in the second half of September, the market will receive estimated business results for Q3 and the first nine months. This result will help investors have a fuller view of the business prospects for the year.

Accordingly, businesses with good growth rates with undervalued stocks because the price was affected by the overall market will attract more investors and cash flow.

However, in the context of differentiated industries, the real estate group of industrial parks, textiles, and fisheries appeared fluctuations in the past one year; oil and gas, banks, real estate, construction, fertiliser and chemicals are under pressure from macroeconomic fluctuations as well as prices of many goods and raw materials, which will hardly expect to increase and decrease together.

To seek profits, investors will have to have faith in the prospects of each business. For example, the VietFund Management Joint Stock Company (VFM) is raising capital for two ETFs based on Vietnam Diamond Index and Vietnam Capped Financials Index built by HOSE, with the aim of investing in stocks with good fundamentals, close to foreign ownership cap, low P/E and financial stocks in the market.

 


Category: Stocks, Vietnam

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