Markets witnessed a relatively active trading week after a long holiday break. VN-Index recorded two consecutive recovery sessions with a gain of 10.51 points to 1,221 points. The increase in VN-Index is in line with the growth of global stock markets. However, the order-matching liquidity is still weak, as it only reached over 14,000 billion VND on HOSE.
Experts agree that the market’s recovery trend is not convincing as cash flow remains weak. In particular, VN-Index has recovered relatively strongly from the bottom and is only about 2% away from a strong resistance zone, so fluctuations may occur. Investors can take advantage of the opportunity to buy some promising stocks to acquire a good price position.
**Selling pressure may emerge soon**
**Mr. Dinh Quang Hinh – Head of Macroeconomics and Market Strategy Department, VNDIRECT Analysis** believes that the market recovery is attributed to positive supporting information received last week. Firstly, the domestic macroeconomic data for April that was released indicates that the recovery trend of the Vietnamese economy is still maintained. Several aspects of the economy have shown positive developments, such as industrial production, consumption, and public investment. This supports the expectation that the growth momentum of the Vietnamese economy will continue to improve in the coming quarters.
Mid-week, the market paid attention to the Fed meeting, where Chairman Jerome Powell made a relatively dovish speech on monetary policy to ease recent market concerns. Accordingly, the Fed left interest rates unchanged, dismissed the possibility of further rate hikes, and indicated that inflation, although slowing down, is still on track. Following this speech, the DXY index and US government bond yields both declined, which helped relieve some pressure on the VND exchange rate in the short term.
Moreover, the ongoing financial reporting season, with its “modest” growth in the business results of listed companies, also supports the market. Given these developments, VNDirect experts believe that the risk of a “deeper secondary bottom adjustment” has been somewhat alleviated. Therefore, the newly formed bottom around 1,150-1,170 points could be the bottom of the market in the medium term. Conversely, the market is approaching the 1,230-point resistance level. Selling pressure may emerge in this zone.
However, higher-than-expected inflation in the US in March has raised concerns in the market that the Fed will maintain higher interest rates for even longer. At the same time, the market has also lowered its expectations for the number of Fed rate cuts in 2024 to 1-2 times, instead of the previous expectation of 3 times. It can be seen that the probability of several major central banks (typically the ECB) cutting interest rates earlier than the Fed is increasing. This will lead to a sustained strength of the DXY in the coming months, which in turn will continue to put pressure on the domestic exchange rate. In addition, both domestic and international gold prices continue to rise, which also adds to the pressure on the exchange rate. It is clear that the exchange rate issue is currently a risk that the market should consider.
In this context, it is likely that stock indices will remain range-bound before a new trend is established. The key short-term market indices that need to be monitored closely are the movements of the DXY and US government bond yields. Traders can buy when the stock indices approach the support level and sell when approaching the resistance level.
In particular, as the VN-Index has recovered relatively strongly from the bottom and is only about 2% away from a strong resistance zone, investors should maintain a moderate equity exposure (less than 70% of their portfolio), avoid making large investments immediately, and wait for upcoming market fluctuations and corrections.
Investments can be divided into two parts: making small-scale investments if the market adjusts to the 1,190-point level and making decisive investments if the market reaches the previous bottom of 1,150-1,170 points. Investors should prioritize investing in stocks of industries with positive growth prospects this year, including exports (wood products, steel), banking, securities, and consumer goods.
**”Sell in May” effect has a limited impact on the market**
**Mr. Tran Truong Manh Hieu – Head of Securities Analysis Department, KIS** commented that although the market has recovered, it is still too early to determine that the correction phase is over as liquidity is still low. The upward trend with low liquidity could be influenced by investors’ cautious sentiment and reduced trading before and after the long holiday. In addition, many people are concerned that the current recovery will be a “bull trap,” with the market rebounding after a sharp decline but facing a lack of cash flow and potentially leading to another sharp decline.
Despite the positive expectations regarding the Fed’s move, KIS experts believe that the Fed’s goal is to control inflation, so the organization’s interest rate policies will depend on inflation data and forecasts. With current pressures on oil prices, US inflation may bounce back in the near future. Therefore, the possibility of the Fed prolonging the period of rate cuts is possible, which could create negative sentiment in the market.
Regarding the “Sell in May and go away” phenomenon, Mr. Hieu said that this term only refers to the fact that the rate of return from May to October tends to be lower than the annual average, while the rate of return from November to April of the following year tends to be higher than the annual average. This phenomenon does exist in the Vietnamese market, but it has been weakening in recent years.
Liquidity will be a key signal at this time to indicate whether the market has bottomed out. If liquidity does not increase, it implies that investors are cautious about the current trend, and the recovery may not be sustainable. Therefore, if cash flow does not enter the market, it will be difficult for the market to move further.
Some groups of stocks that investors may be interested in the coming period include: (1) Industrial real estate, influenced by the surge in FDI inflows and changes in land laws. (2) Airlines, with the recovery of the tourism industry and the lifting of travel restrictions from China. (3) Construction materials, with the increase in infrastructure projects and the warming up of the real estate market.
**Some notable industry groups**
**Mr. Nguyen Minh Hoang, Head of Analysis Department, Nhat Viet Securities Corporation (VFS)** believes that the market’s medium- to long-term upward trend remains intact; however, the short-term trend has been broken after the recent decline of nearly 10%. Therefore, the recent increases should be seen as a recovery and balance, rather than an uptrend.
Divergence is also taking place as the first-quarter financial results of companies have been continuously disclosed. With a series of macroeconomic news, such as the Fed meeting and the macroeconomic data for April 2024, money flow continues to observe cautiously and wait for more signs of a true bottom in the market.
Liquidity weakened in the last two trading sessions of the week due to investors’ hesitation during the recovery phase, as the market has not yet clearly confirmed a bottom. The trading session on Friday was also a fund restructuring session, with the index’s fluctuations partly affecting investor sentiment. On the other hand, the macroeconomic market is not clear for new buying, as exchange rates remain high and concerns that the State Bank of Vietnam may raise its operating interest rates continue to weigh on market sentiment.
According to VFS experts, a signal that the market has bottomed out can be observed when quality stocks surpass their previous highs, which implies that the market may struggle to correct deeper than the bottom created. Moreover, cash flow must show signs of reinvigoration, and an explosive session with recovered liquidity would be a confirmation signal.
Commenting on the Sell in May effect, the expert said that in the past 10 years, the VN-Index has shown a relatively balanced performance in May, with a probability of increase/decrease at 50/50. As much of the negative news has been factored into the sharp correction in April, it is unlikely that the market will perform worse in May.
Currently, the market still faces many potential risks of fluctuations as liquidity has not yet improved, and many macroeconomic factors are still highly volatile. However, with a strong sell-off of 60 points that came unexpectedly, many investors are trapped, and the market needs more time (a few weeks of narrow fluctuations) to absorb information and supply.
Therefore, although fluctuations or reversals may occur, they will not create a new bottom lower than the 1,166 level created earlier. It is expected that the market will become more positive from mid-May onwards.
The expert believes that investors should focus on economic factors rather than monetary policy and the recovery of corporate earnings. For example, retail, technology, rubber, and securities will continue to be industries of interest in the second quarter, especially retail, which has a low base and an impressive recovery in earnings in the first quarter of 2024.
