Invest in Vietnam: How You Can Play The Distribution Phase

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May 05, 2016

Disclaimer: The opinions expressed herein are that of  RongViet Securities and not of VietnamAdvisors. This is NOT a solicitation to buy or sell securities.

Stock Market in March: The first distribution phase in 2016

The market came into a distribution phase so good investment opportunities in March were just from some specific stock groups. Both VNIndex and HNX-Index showed strong signals of distributing after peaking in the mid of March. Therefore, these indices closed at nearly the same levels as closing prices of February. This distribution phase may be caused mainly by: (1) The Circular 7 has come into force (since 15/3/2016), causing short-term selling pressure on the stock market and (2) commodity prices have likely corrected after months of rallying.

However, high realized earning returns were still available at some specific stocks, typically: resources sector (+12.2%), construction and construction materials (+19.9%), utilities (+9.2%) and Upcom stocks (+25.7%). While upward momentum is mitigating, investors have caught many uncommon opportunities at some penny stocks and even Upcom stocks. These provided huge investment earnings if these investors opened long and selling positions appropriately, especially at resources stocks and some other penny stocks (ATA, HDO,…) and some high liquidity Upcom stocks: MSR, GEX, SDI,….


Cash inflows were either stable and improved significantly compared to the same period of last year. The market in March witnessed both liquidity and cash flows being improved considerably. Average of order-matching volume and traded value were 133.4 shares and VND2,040 billion, respectively, increasing by 44% and 31% in line comparing to the same period of last year. Moreover, these cash flows concentrated mainly on mid and small cap stocks, with traded value of those groups rising 72% (yoy) and 32% (yoy), respectively. Otherwise, cash flows also pumped strongly into the Upcom market, with an average of traded value at VND83 billion, increasing 77% (yoy). However, cash flow dispersion between Upcom stocks still remained relatively high, with over 70% out of total traded value of this market focusing on only 5-6 tickers listed in this market, typically: GEX, MSR, SWC, SDI, VEF, VGG.


2015’s business results: lower growth pace but some sectors’ growth appeared attractive. Total revenue and PAT of companies listed in HSX and HNX (not accounting for banking, financial services stocks) increased only 7% and 10%, respectively in 2015. These figures are considerably lower than 2014’s. However, some sectors witnessed extremely higher growth rates than the average of the market, such as:


Foreign investors made some marks in 1Q/2016. Unlike the inflow trend in 3 recent years, foreign capital outflowed VND742.2 billion in this first quarter. Foreigners have turned to net sellers since August 2015 to the end of February 2016. The value of their trading activities saw improvement from Jan to Mar: foreign investors net sold to an extreme value of VND1,128 billion in Jan and the selling value reduced to around VND216 billion in the following month before offshore investors turned to net buyers to the tune of VND727 billion worth of shares in both bourses. In HSX, they net bought MBB to a value of VND812 billion thanks to the FOL lifting of this bank. VIC was strongly shorted with a distinctive value of VND1,903 billion. In HNX, SCR was their top buy at VND82 billion while DBC was their top sell at VND50 billion. Uncommon act in 1Q/2016 should not be a big concern as foreigners only strongly sold at specific stocks and specific sectors.


The reconstitution of ETFs did not have any differences from the forecast of brokers. Remarkably, both funds witnessed capital outflows in a starting quarter since 2011. The investors withdrew USD28.0 million from VNM ETF and USD13.7 million from FTSE ETF. With the anticipated FED lifting up its rates, capital outflow pressure might be persistent to these two ETFs.

Foreign investors tended to be quite active in buying in the first quarter while they usually turned to net sellers when it came to the interference between April and May when market normally corrected in this period (Halloween effect, which was presented in a report from RongViet Research in on 31/10/2015). However, foreign investors are showing signs of stability. Also the story of FOL lifting will be a hot topic during this AGM season. To sum up, we expect foreign capital will soon return to Vietnam stock market.

April Stock Market Outlook: Buy on dip with selection

The stock market went full circle in March as VNIndex and HNIndex climbed strongly during the month but ended down 3% and 2% respectively. Trading activities were much more robust than the previous months, partly thanks to the return of foreign investors as net buyers. Last month, foreign bought a net VND727bn in both exchanges. In the listed markets, the rise of oil & gas and electricity stocks, most notably GAS, VCB, PPC, NT2 and BTP captured the spot light. However, it was the Upcom market that introduced a new taste to the market. Upcom stocks such as MSR, GEX, TOP, VGC, VEF, etc. gained strongly under the support of speculators before a withdrawal of liquidity near the end of the month sent these stock back down. Since stocks moved too fast and there was a strong divergence among sectors and securities, not many investors were to make large profits last month.

There was strong relation between March’s stock market macroeconomic developments of Vietnam in the first quarter. While foreign exchange risk became less concerning, low oil prices caused oil-related revenue in the state budget to fall below expectations; tax revenue from State-run enterprises, especially Dung Quat Refinery was also negatively affected by oil price volatility. On the other hand, Vietnam’s GDP growth only 5.45% in Q1 under the impact of lower oil exports and contraction in the contribution of the agriculture sector as a result of El Nino. On the positive side, three sectors including (1) electricity, (2) construction and (3) building materials exhibited a jump in production value in Q1. Our survey shows that companies in these sectors are generally more optimistic about their business in 2016. Conversely, most oil & gas, natural rubber and automobile companies target lower profits and revenue in 2016. Despite a strong rally in stock prices, electricity companies, including large thermals power and hydropower plants are quite conservative in their 2016 business plans.

Apart from these two factors, we believe that news on FOL expansion would be the topic of much interest in this AGM season. From the AGMs of REE, FPT, PNJ and VSC, we have learnt that developments in the lifting of foreign ownership constraint have been limited and that not every company is excited about this matter. However, we understand there is still a lot of interest from foreign investors for companies with substantial SCIC holdings such as BMP, DHG and especially VNM and expect the developments on the FOL expansion of these companies to have a positive impact on the market.

VNIndex is expected to move between 540 and 574 and HNIndex between 75 and 81 this month.

In the first two week of April, we believe it is necessary to reduce the allocation to stocks as the risk of retracement is still relatively high. Besides, strong fluctuations and unsustainable rebound in the prices of oil and other commodities make stocks in these two groups more suitable for investors with above-average risk tolerance. Similarly, we advise against participation in volatile Upcom stocks, at least until the market regains stability. Nonetheless, a strong decline of the market could become a great opportunity for long-term investors and those who have cash on hand.

For the time being, it is advised that investors pay more attention to sectors with positive Q1 business prospects such as construction, building materials, technology, insurance, etc. In addition, investor should should exert caution with oil & gas and electricity stocks, many of which have grown strongly in the last two weeks. In fact, a decrease in crude output promises a tough year for oil & gas companies despite the recent recovery of crude oil prices.

Meanwhile, extreme droughts and water shortage should support thermal power companies in term of prices and output in the short term; however, EVN may tightens its grip and imposes disadvantageous terms in PPA contracts, making it difficult for these companies to achieve strong profit growth.


1Q2016 Business Trend



For the whole month of April, trading in the stock market should remain positive, supported by (1) increasing participation of foreign investors, (2) updates on FOL extension by big companies and (3) maintained liquidity in both exchanges. However, while waiting for supportive information, the chance of adjustment or sideway situation could be relatively high. Seeing a high possibility that the market will recovery in later weeks of April, we believe that this is a good time to accumulate stocks with strong business outlook in Q1 and the year 2016.

The construction and building materials sectors rank in the top of our rating table. In its Q1 report, the Ministry of Construction said that construction value across the country grew 9.94% yoy in the first 3 months of 2016, the highest rate since 2010. Primary materials such as steel, iron, cement, ceramic tiles also experience positive growth rates in consumption, production and prices. With the increasing number of transportation, industrial and real estate projects being launched, we are still optimistic about the business prospects of contractors and building material manufacturing in 2016.

With large backlog carried over from 2015, technology companies should have a strong year ahead. The initiation of key transportation projects and new investment by Mobiphone will provide substantial works in equipment installation and system integration. We believe tech firms with fiscal year ending in March and those with large unrecognized revenue could record positive results this quarter.

The decline in output from hydroelectric power plants due to 2015 – 2016 El Nino could increase electricity prices and sale output from thermal power plants. Moreover, coal and gas prices should remain low, allowing thermal power plants to maintain strong margins, at least until the rainy season begins. However, we emphasize that these are short-term benefits because the tight grip of EVN could hinder power plants’ chance to realize strong profit growth. In the long-term, gradual increases in electricity demand, underpinned by the recovery of industrial production activities is the main driver for the electricity sector.

  • Transportation: PVT
  • Seaports: HAH, VSC
  • Construction: FCN, CTD
  • IT: FPT, ELC
  • Electricity: NT2, PPC, REE
  • Real estate: BCI, KDH, NBB, LHG
  • Special retailers: SVC
  • Building materials: DNP, BMP, HT1, KSB, HPG, HSG
  • Textile – garments: TCM, STK
  • Oil & Gas: PGS, PVS, PLC
  • Food & Beverages: VNM
  • Other sectors: SKG, DHC, DRC, PTI, PAC, DPM







This report is prepared in order to provide information and analysis to clients of Rong Viet Securities only. It is and should not be construed as an offer to sell or a solicitation of an offer to purchase any securities. No consideration has been given to the investment objectives, financial situation or particular needs of any specific. The readers should be aware that Rong Viet Securities may have a conflict of interest that can compromise the objectivity this research. This research is to be viewed by investors only as a source of reference when making investments. Investors are to take full responsibility of their own decisions. VDSC shall not be liable for any loss, damages, cost or expense incurring or arising from the use or reliance, either full or partial, of the information in this publication.The opinions expressed in this research report reflect only the analyst’s personal views of the subject securities or matters; and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or opinions expressed in the report.

The information herein is compiled by or arrived at Rong Viet Securities from sources believed to be reliable. We, however, do not guarantee its accuracy or completeness. Opinions, estimations and projections expressed in this report are deemed valid up to the date of publication of this report and can be subject to change without notice.

This research report is copyrighted by Rong Viet Securities. All rights reserved. Therefore, copy, reproduction, republish or redistribution by any person or party for any purpose is strictly prohibited without the written permission of VDSC.

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