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Market comments – July 13
Markets accelerated their downward decline on Monday and ended the day at a new closing low for both the VN-Index and HNXIndex so far in the current correction. Weakness on overseas markets and further evidence that credit growth will slow in the
2-H wasn’t offset by continued good 1-H earnings reports or even news that the government may try to further boost spending.
In fact the rate of decline Monday was far sharper than Friday suggesting that we may be in for further weakness this week.
Market breadth was very narrow although foreigners were still net buyers. Most blue chips fell and the VN-Index would have declined more, but for Vinamilk (VNM)’s strong performance which added 1.4 index points to a beleaguered VN-Index Monday. Given that bond yields have been rising steadily news of more possible government spending is not positive for equities at this point.
We are clearly starting to see a crowding out effect for private sector lending demand as expressed in rising 5 year bond market yields at 9.75 percent currently and that’s not positive for equities short term.
However the main drag on the market is lethargy which is a seasonal factor. Volumes are lower, the news cycle has slowed and investors want to see more evidence that private demand is recovering independently of government expenditure before returning to the market. This will take time to materialize and while we have no doubt that Q3 is likely to give rise to another burst of enthusiasm in the equity market, we are likely to move lower in the short term. Can we break downside of 400? Yes, it’s very possible especially given the fact that support at the 420 level on the VN-Index will be tested as soon as Tuesday.
Both short and longer term investors should be cautious for now and let the market trade for a few days until we get a clearer idea of where possible support lies.
Fiachra Mac Cana,
Head of Research at the Ho Chi Minh City Securities Corp.
thanhnien
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