With Covid-19 unlikely to go away this year, central banks will have to maintain loose monetary policies to prop up economies. This, along with shifting global supply chains, will bring even more advantages to the domestic stock market, Tran Thanh Tan, general director of fund manager VietFund Management (VFM), said.
In their latest strategy report, Rong Viet Securities (VDSC) said the recovery of the domestic economy with Vietnam’s Covid-19 situation under control will be a pillar for the VN-Index’s sustained rise.
Low interest rates will continue making equities more attractive in terms of profitability and draw cash flow, while the market has some supporting factors such as the possibility of being upgraded to second emerging market by global provider of benchmarks, analytics, and data solutions FTSE Russell, as well as being on the emerging market upgrade watch list of MSCI, the provider of global indices and benchmark related products and services to investors worldwide, it said.
Concurring, Tran Thi Khanh Hien, head of research at brokerage VNDirect, added the VN-Index could also get a boost from the fact that a vaccine could be widely deployed soon.
However, analysts have also cautioned that VN-Index’s rally could be hampered in a scenario where the global economy and domestic listed firms’ profit recovery goes more slowly than expected.
If this happens, the VN-Index is only likely to reach the 1,180 points at the end of the year.
According to VDSC, the valuation of Vietnam’s stock market remains quite attractive compared to regional peers, with a relatively low price-earnings ratio of 16.9. But geopolitical factors such as the U.S. labeling Vietnam a “currency manipulator” may affect general sentiment.
Vietcombank Securities (VCBS) also warned that the effect of most of the market’s current supporting factors, such as promising vaccine tests and healthy cash flow, which appeared in the second half of 2020, may weaken in the near future.
The VN-Index will hover around a high price level, with the difference between the year’s peak and trough narrowing to around 20-150 points instead of over 440 points last year, and “year-to-year peaks could rise around 8-12 percent”, VCBS said.
If Covid-19 vaccines prove effective, allowing the global economy to rebound, monetary policies in the second half of 2021 may change and put brakes on the index’s momentum.
“Investors should not get too excited, and should really understand their investments,” said Tran Thanh Tan of VFM.