Three scenarios outlined for stock market

In its report it wrote that it believes the market will be more active in the immediate future as exchange traded funds (ETFs) have finished reallocations so investors will be less cautious about the result of the funds adjusting their portfolios.

In the positive scenario MayBank Kim Eng discusses, the VN-Index will increase sharply from the resistance level of around 645 points and peak around 700 points in the short term.

In the less positive scenario, if the VN-Index falls to the 645-point mark it may continue downwards to around 620 points before fluctuating for a period and possibly returning to 620-675 points.  

In the least positive scenario, if the VN-Index hits 620 points there will be negative trading in the short term and it may go as low as 600 points or even lower. This scenario will only happen if foreign investors continue to net sell, the US Fed increases interest rates in September, and volatility hits international markets. MayBank Kim Eng, however, doesn’t believe this scenario will occur.

It pointed out the importance of foreign investors from a psychological point of view.

“Although the trading value of foreign investors accounts for only 20 per cent of the total, their moves are considered a key factor that strongly affects the market’s prospects,” MayBank Kim Eng’s analysts wrote.

Since the beginning of August net selling by foreign investors reached VND5 trillion (US$224.10 million) and indexes have fallen. For the VN-Index to get back on track requires foreign investors net buy.

2016 has not been an active year in terms of foreign investor buying. Figures show that prior to August their trading was neutral.

The VND5 trillion (US$224.10 million) in net selling in the almost two months since added the highest volatility seen in the market this year. 

The short-term prospects for the market will therefore depend significantly on the actions of foreign investors.