During a discussion with Passion Investment’s CEO, Mr. La Giang Trung, at the beginning of last year, he stated that being “ready” was the mindset for stock investors to prepare for in 2023, being ready to face the challenges and seize opportunities in the stock market. In reality, despite unpredictable fluctuations, the VN-Index ended 2023 with an impressive growth of over 12%.
Looking ahead to 2024, the key phrase for the stock market, according to CEO Passion Investment, is “boom.” The Federal Reserve’s policy shift, continued loose monetary policy, and Vietnam’s strengthened fiscal policy will lay the foundation for the market’s boom in 2024.
2024 is forecasted to mark the reversal of monetary policy from tightening to easing, according to Mr. La Giang Trung. He wonders how the Fed’s move will affect the management of the State Bank of Vietnam.
The Federal Reserve’s monetary policy is always the most influential factor on global financial markets. Essentially, when the Fed starts cutting interest rates, it implies that an easing cycle is approaching, which is beneficial for financial markets worldwide, including Vietnam.
In the context of Vietnam’s recent economic difficulties, the Government will take measures to stimulate economic growth while keeping inflation at a low level. Although there is still pressure on the exchange rate, the Fed’s potential interest rate cuts could improve global liquidity and relieve the interest rate differential tension.
However, it is difficult for Vietnam’s monetary policy to ease further because deposit interest rates are already at a very low level. The most important factor is how long the low interest rates will last and whether M2 money supply will increase. Currently, interest rates are very low, but the M2 money supply is growing slowly due to the slow recovery of money circulation, as economic entities are not absorbing capital well. With interest rates remaining stable and the economy recovering, the M2 money supply will increase significantly, which will have a positive impact on the overall economy and the stock market in particular.
Many people have high expectations that the Fed’s policy reversal may lead to a strong increase in the Vietnamese stock market. What is your opinion on this?
Not necessarily. We need to understand whether the Fed’s interest rate cut is proactive or reactive. In a scenario where inflation is reduced and the economy is not deeply in recession, the “soft landing” scenario helps the global and Vietnamese stock markets continue to rise. The second scenario is a “hard landing” where the Fed has not loosened its policies, but the global economy has weakened, forcing the Fed to suddenly cut interest rates, which will be a challenging period for the global and Vietnamese financial market. In particular, the Vietnamese stock market has a close correlation with the global stock market, especially the US stock market, so investors need to closely monitor these indices.
The US stock market has shown strong growth in recent years, led by the technology sector, while the structure of the Vietnamese stock market is mainly real estate and banks. Is it possible that the US stock market continues to surge, but the VN-Index remains stagnant due to the lack of hot trend stocks?
The story of the US with quality businesses is reflected in the difference between the growth of the S&P 500 and the VN-Index. While the VN-Index is still far from its peak, the US has surpassed its previous high. The nature of the Vietnamese market is that there are not many businesses that create large value, strong growth, and new innovations.
Vietnamese businesses are mainly cyclical, and the stocks are similar. While technology stocks in the US can increase several times compared to their previous peak, Vietnamese stocks may only return to their previous levels or slightly higher if the Fed eases monetary policy. Although they are moving in the same upward direction, the US stock market shows a strong upward trend, highlighting the difference in the quality of businesses.
In fact, the US stock market has experienced strong growth in anticipation of the low likelihood of a recession in the country. The Vietnamese stock market, although not growing as strongly, has been on the rise since the economy is still slow. This is also a bright spot for the market in the coming time, as there is still good growth potential if the global stock market continues to rise.
In your view, what will the macroeconomic picture be like in 2024? And what will be the biggest factor influencing the stock market next year?
2022 and 2023 were both challenging years, but the economy still grew at more than 5%. Vietnam has gone through the most difficult phase of its economy, so achieving a growth rate of 6% or more is quite feasible, especially as the US economy is forecasted to continue its positive recovery with lower interest rates.
At any given time, the most significant event for the stock market is still the monetary policy and fiscal policy. All business activities follow these policies. The possibility of continued loose monetary policy and the strength of fiscal policy will be very positive factors for the stock market in 2024. In the next 6 months, I believe nothing can negatively impact the ongoing positive easing policy.
Therefore, in your opinion, at what stage of the economic cycle is the Vietnamese stock market currently?
There are 3 stages for the stock market: recovery, boom, and recession. Since November 2022, the Vietnamese stock market has still been in the recovery stage. After some businesses go through the recovery phase, the market will continue to rise thanks to the recovery of the remaining low-priced stocks. After the overall market valuation returns to normal levels, for the VN-Index to continue to rise, companies need to show an increase in profits. After the recovery phase, the market will rise slowly for about 3 years.
During the early stage of recovery, it is difficult to expect a breakthrough in profit growth. I believe that business growth in 2024 will be around 10-12%. However, the stock market is a market of expectations, so if the market rises in the first 6 months of the year, the expectation of a 10% growth will likely be reflected. In the second half of 2024, the market will focus on the profit expectations of companies in 2025, and this figure is forecasted to increase by over 20%.
As a fairly accurate forecaster of the VN-Index score, what is your forecast for the market scenario in 2024?
Firstly, in terms of valuation, the general valuation of the market is not high, with P/E ratio at around 13-14 times and P/B ratio at around 1.7-1.8 times. Secondly, the world stock market is performing very well, with most stock market indices surpassing their previous highs.
When combined with positive factors such as the world’s monetary policy preparing to ease, Vietnam’s low-interest-rate monetary policy, the stock market in 2024 has a huge potential for a boom. I believe that the VN-Index in 2024 has the opportunity to return to around 1,500 points, with a growth rate of over 30%. This will be the premise for the market to surpass its previous peak in Q1 2025.
However, the stock market growth in 2024 will be different from that in 2023. If last year, the driving force behind the market’s increase was mid-cap and small-cap stocks, 2024 will be the year of large-cap stocks with low valuations leading the market’s breakthrough. Although large-cap stocks will drive the VN-Index to surge in 2024, there will be very few stocks that grow faster than the VN-Index.
This year bears many similarities with the period in 2017 when the VN-Index increased by 50%, but many investors did not make a profit. This is because the fastest way to make a profit is when the market increases with different stocks taking turns, but when large-cap stocks increase, the index makes a strong breakthrough, but investors find it difficult to rotate stocks continuously.
The P/E valuation of the market is decreasing, with the same milestone of 1,100 points, but the P/E ratio was 50 times in 2007, around 22 times in 2018, and currently around 13x times. What do you think about this?
P/E ratio is usually compared to interest rates or growth rates. In the period before 2007, the economy was growing at 8-9%. Currently, the economic growth rate is slightly lower at 6-7%, which has slowed down the growth rate of business profits. This leads to a decrease in the P/E ratio of the market.
In addition, as the stock market develops, investors become smarter and know how to price appropriately. Before, when the P/E ratio was 50 times, many investors did not understand much about the stock market, but when the P/E ratio was 22 times in 2018, many investors knew it was expensive. Therefore, the stock market has periods of booms and busts, but there is no catastrophic downturn as in the past because when the market is the most greedy, the valuation is not excessively high.
Considering the growth factor in the current record-low interest rate environment, I believe that the current P/E level is not high.
The presence of new listings on the stock market has been lacking. Is this the reason for the low valuation and continued net selling of foreign investors?
These are also unattractive points because large businesses have already been listed, and Vietnam lacks pioneering companies with innovation and outstanding growth. The Vietnamese stock market has more cyclical characteristics, and the nature of businesses and business operations does not change much, but the stock prices will fluctuate depending on the cycle.
Given the positive forecasts above, what investment strategies do you think are appropriate, and which stock groups will be the focus in 2024?
The investment strategy for this year is to choose large-cap stocks with low valuations and not to trade too much. In an upward trending market, excessive trading can cause investors to miss opportunities with good stocks. Instead, investors should buy and hold stocks throughout 2024. It is also important to emphasize that it will be difficult for investors to find stocks that double in value this year.
In terms of investment opportunities with groups at attractive valuations, I believe that the banking sector will be the stock group of 2024. With low-interest rates maintained by the government in history, combined with a low valuation of P/E at 5-6 times and P/B at 1-1.2 times, bank stocks will have a lot of potential for strong growth. Additionally, the retail group is also expected to rebound due to its low valuation and gradually overcoming difficulties.
If lending in the real estate group continues to be stagnant, how will bad debts in the banking group be affected? Are investors willing to pay a higher premium for this group?
In reality, real estate still faces many difficulties, but many real estate segments have also increased by 10-15%. The essence is that banks hold collateral assets of borrowers, namely real estate, so liquidity is still the most important factor.
As an analogy, if the valuation of an asset is 100 VND and the lending is 70 VND, the borrower also contributes 30 VND. Suppose the value of the asset decreases to 60 VND, then the bank may incur losses if it cannot collect the debt. However, if the asset decreases to 70 VND, the bank will not suffer losses as the inherent value of the asset did not change much. Therefore, if the real estate market continues to grow by 10-15%, the bad debts of the banks will be resolved without waiting for the real estate market to return to its previous peak.
Thus, I believe that the issue of bad debts will not have a significant impact on the prospects of banking stocks in the near future.
