Forecasting two scenarios for the stock market in November

the stock market is still the best growth channel in the short and medium term. Source: Internet

Commenting on Vietnam's macroeconomic situation in October, Yuanta Vietnam Securities Joint Stock Company said that the change in Covid-19 prevention from "Zero-Covid" to living with the virus has initially promoted the effectiveness in the economic aspect when the macro indicators in October mostly showed positive signals such as strong growth in industrial production and total retail sales compared to the previous month.

Besides that, the import-export situation, as well as FDI inflows, improved slowly, partly because HCM City and the southern provinces have reopened, the amount of manufactured goods has been moderate, so it will need time to boost export activities, especially in the context of high logistics and input material costs.

According to YSVN’s assessment, in terms of inflation, the risk factors are in the medium term. With only two months left to end the year, there is a high probability that inflation of the whole year will remain within the target range of less than 4% as set by the Government. The factors of exchange rates and interest rates have not shown significant risks to the economy.

Along with that, the number of enterprises returning to operation in October increased by nearly 30% and the number of newly-established enterprises also increased in both quantity and registered capital, showing positive information in the production activities of enterprises.

In addition, the situation of public investment is also changing more positively. Although it still decreased compared to the same period last year, disbursed capital for public investment in October increased by 18.6% and reached 64.7% of the yearly plan in 2021.

According to YSVN, it will be difficult to complete the disbursement of 100% of public investment as planned, however, with strong and strict measures against delayed disbursements, in the last two months, public investment projects will be quite active and will still be a big driver for economic growth in the fourth quarter.

In addition, the stimulus package being built will be the driving force to restore the economy and clear the flows of capital, and will also stimulate consumption after a prolonged period of social distancing due to the pandemic.

According to YSVN, interest rates are still in a downtrend in the short term. It showed that the stock market is still the best growth channel in the short and medium-term.

“The VN-Index was trading at a P/E TTM (Price to Earning ratio with trailing 12 months) of 17.1 times (based on the business results of 604 companies announced), higher than the 14-year by 15.5 times and lower than the base forward P/E of 18.3 times, showing that the current price level was still attractive and has room for growth,” YSVN stated.

This unit also forecast two market scenarios in November. In which, scenario 1 forecast the VN-Index would increase directly to 1,534 points (70% probability). With this scenario, the group of mid-caps and small-caps still attract cash flow.

"We expect that VNMidcaps and VNSmallcaps could have the highest growth rates of 6.75% and 14.18%, respectively, compared to the closing level of the session on October 29, 2021," YSVN's report stated.

YSVN also said the cash flow was divided among stock groups thanks to the recovery in the fourth quarter of 2021 when the economy gradually returned to operation, so investors still had the opportunity to find profits. The investors may hold a high proportion of stocks in the portfolio.

With the second scenario, the VN-Index is forecasted to drop to the range of 1,363 - 1,380 points, the probability for this scenario is 30%.

“In this scenario, leverage risk increased in the market. Margin/capitalization ratio reached 2.75% in the third quarter of 2021, this was the highest level since 2014. At the same time, the high margin growth outperformed the market growth. Therefore, it was recommended that investors reduced the proportion of stocks when the market confirmed the short-term downtrend," YSVN recommended.