Saigon Securities Incorporation (SSI) Retail Research has just released a report on the currency market in April with a statement mentioning that the stock market is gradually finding reasonable prices.
Specifically, according to analysts, in April, the Vietnam’s stock market experienced a deep fall on a large scale when the number of losses doubled the number of gains. All major stocks fell sharply, causing a heavy psychology pressure on the general market.
Banks influenced other groups
After growing strongly in the first quarter of the year and surpassing other markets in the world, the VN Index set a new height at 1,204.33 points on April 9th, up by 220 points (22.4 percent) compared to the end of 2017, and increased by 49 percent in just six months. Since then, the market dropped sharply, VN Index fell to 1,050.26 points, losing 154 points (12.8 percent) from the newly established peak. Under the strong selling pressure, the market could not gain in two consecutive sessions, and many bull traps were constantly created. The total market capitalisation on three floors declined by 20 billion USD to 173 billion USD.
The price drop in April recorded the clear impact of bank stocks on the overall index. From April 10th to 26th, most bank stocks fell sharply. Except for TPB of Tien Phong Commercial Joint Stock Bank (TPBank), EIB of Export Import Commercial Joint Stock Bank (Eximbank) and NVB of National Citizen Commercial Joint Stock Bank (NCB), the remaining shares dropped more deeply than the VN Index (13.24 percent), in which the key codes including VCB of Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), CTG of Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) and MBB of Military Commercial Joint Stock Bank (MB) all fell by over 20 percent, pulling the VN Index to fall by 62.8 points in the total 159.5 points lost.
The total capitalisation of bank stocks accounted for 24 percent of the total market but contributed by up to 39 percent of the lost points of VN Index. Moreover, the banking sector was also the main sector that led market psychology and had more influence on other sectors.
SSI Retail Research analysts commented that in terms of business activities, year 2018 is still considered a successful year for the banking sector. The after-tax profit in the first quarter of 2018 of 12 listed banks increased by 51.6 percent compared to the same period of 2017, higher than the 36 percent increase recorded in 2017, in which some banks recorded twofold or threefold increase such as Asia Commercial Joint Stock Bank (ACB), Hochiminh city Development Commercial Joint Stock Bank (HDBank), TPBank, and Eximbank. The leading banks also posted impressive growth such as 58.7 percent for VCB. Thanks to the banking group, the total after-tax profit of the entire market grew by 22.9 percent in the first three months of 2018.
In the context when the business results as well as the macro indicators in the first quarter were positive, the plummet of the stock market has caused confusion and disorientation for investors.
Nevertheless, according to SSI Retail Research, if looking from the angle of valuation, the cause of the decline will become clear.
The market is no longer cheap
Before November 2017, the Vietnam’s stock market traded on a fairly low Price per Earnings (P/E) valuation, reaching an average of 14.2 times. In the past five years, the P/E of VN Index has only fluctuated in the range of 10.8-17.4 times and always been lower than other regional countries. Analysts believed that this valuation is reasonable given the small scale of the Vietnam’s stock market.
“However, the rapid and strong rise since late 2017 has pushed the valuation to a very high level. With profit growth rate of the entire market reaching 23 percent in 2017, the VN Index increased by 48 percent in 2017 and further increased by 22 percent in just over the first three months of 2018. The P/E valuation thus has been raised compared to the historic records, reaching 21.5 times, even exceeding the US market (20.2 times) and other countries in the region”, the report clearly stated.
With the leading position, the major stocks have been valuated higher than the general market. The average P/E of the top 30 stocks on the three floors reached 29.4 times. Notably, VIC, ROS, and VRE shares all recorded P/E of over 50 times.
Despite having not very high P/E, the P/B (Price on Book value) of bank stocks is also expensive compared to the stocks of other banks in the world. The P/B of VCB once peaked at five times while the average level of the bank stocks with similar scale is only about 1.5 times. Similarly, the P/B of many other bank stocks such as BID, VPB, HDB, and ACB all exceeded three times.
SSI Retail Research said that in this context, the lower valuation is completely healthy and needed for the sustainable growth of the stock market.
