Expectations for the stock market in 2020

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Financial-economic expert Phan Linh.

Like other years, many macro factors affected the market in the past year.The stock market has seen the last session of 2019. In recent days, the market has been quite gloomy because foreign sectors net sold for four consecutive months and the VN-Index was against the world market’s trend, falling to 950 points. What do you think about Vietnam's stock market in 2019?

Firstly, registered FDI inflows in the first 11 months of 2019 slightly fell (-7.7 percent) from the same period last year at US$14.7 billion but disbursed FDI in this period reached $17.6 billion, up (6.8 percent) compared to 2018. In addition, the Politburo's first resolution after 30 years of attracting FDI has targeted selective investment in high-tech and clean industries with high added value and sustainable development. These factors greatly benefited logistic stocks and industrial real estate stocks.

Secondly, inflation and exchange rates remained stable. Inflation in the first 11 months of 2019 was at a low level of 2.57 percent despite the sharp increase in pork prices due to African swine fever and the New Year holiday, which is the lowest level in the last three years (lower than 4 percent according to the plan). The exchange rate was kept stable despite world’s complex developments. This made foreign investors assured when investing in Vietnam. In particular, investment from Hong Kong (China), China, South Korea, and Taiwan (China) has been on an upward trend recently.

Thirdly, the State Bank is tending to tighten credit flow in areas deemed risky such as real estate and consumer credit. This move made real estate businesses look for other sources such as bonds and stock issues. 2019 was a difficult year for the real estate market but an intense year for the corporate bond market.

In addition to internal factors, how did the world situation last year affect Vietnam's stock market?

Regarding the world situation, the Fed lowered its interest rates three times consecutively in 2019, while the ECB applied a monetary easing policy. This stimulated the world economy and stabilised investors’ psychology.

In addition, 2019 was the peak of the US-China trade war when the US continued to impose a tax rate of 25 percent on $200 billion of goods imported from China, mainly on electronics and technology products. In response, China imposed a tax rate of 5 – 10 percent on $75 billion of agricultural products imported from the US.

Besides, President Trump also imposed taxes on steel products imported from Canada, Mexico and Vietnam. The tension caused by Trump created a protective wave around the world that made world trade stall. In fact, when the trade war broke out in early 2018, the VN-Index peaked at 1,200 points. And this "peak" has not been able to return until the end of 2019 - after nearly two years due to tensions of the US-China trade war affecting investors’ psychology.

In the context of the global and domestic economic-political situation as analysed above, what can stock investors expect about the market next year?

By 2020, Vietnamese stocks still have seen many optimistic signals. That is the inflation and the exchange rate are expected to remain stable thanks to the management of the State Bank over the years.

2020 is expected to continue to be a difficult year for real estate businesses but there may be opportunities from large public investment areas such as the area around Long Thanh Airport, or real estate businesses with large land funds and convenient transportation links in the prioritised areas to attract a lot of FDI capital.

2020 is also the last year for commercial banks to list on the stock exchange and meet Basel II standards. Currently, there are only 18 of 30 commercial banks listing on the exchange and only 18 banks meeting Basel II standards. Thus, 2020 is set to be an exciting year for such "king stock" types.

Next year, we can fully expect the stock market will be upgraded according to FTSE Russel criteria because in the two previous assessments we reached seven of nine criteria of this agency. If Vietnam's stock market is upgraded by both MSCI and FTSE, more than $1 billion will flow into the market.

The trade war is also expected to be less tense because at the end of talks on December 13, the US decided to postpone new tariffs on Chinese imports. First, this makes protectionism around the world less stressful and global trade improved. Secondly, this agreement also eases tension in the monetary war as China has continuously devalued renminbi. According to statistics, from the time of trade tensions, China has devalued 12.5 percent ​​against the dollar since the beginning of 2018 until now. This also affects Vietnam’s exchange rate.

Since 2020 is also the year for the re-election of the US president, Trump is likely to put pressure on the Fed to continue lowering or keeping interest rates at current low levels to stimulate the economy. The reason is that no president wants to bring poor growth statistics from his term into the campaign for re-election.

Thus, 2020 is expected to be a promising year for the stock market when many fundamental stocks and growth stories have fallen to attractive prices. The price to earning ratio (P/E) at the end of 2019 fell to 15, which is the average rate compared to other markets in the region, while Vietnam has always been assessed as a country with rapid growth and a stable investment environment in recent periods.

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I personally expect a number of banking and industrial real estate stocks that have their own fundamentals and a new story in 2020.