Brokers Expect Further Consolidation

As an electricity price hike proposal dampened investor sentiment last Friday, securities firms are concerned that the market will see further consolidation with investors possibly choosing to hold fewer stocks after a sluggish trading week.

As a spike in electricity prices would lead to inflationary pressure and a slower recovery of the manufacturing sector, short-term investors lost appetite for risky assets, dragging both indices into negative territory. The rationale is that the market has seen a pretty good rally so far and investors are taking profits off the table to wait for a retracement to accumulate again.

The VN-Index tumbled nearly six points to 480.1. Meanwhile, closing the week barely unchanged from last Friday, the HNX-Index slumped 1.65 points to 81.58.

Trading on the southern bourse contracted 15% in volume and 27% in value to 114.3 million shares traded worth nearly VND1.7 trillion. Liquidity on the northern exchange dropped 9% in volume and 10% in value to 91.8 million shares worth VND992 billion.

According to Viet Capital Securities Co. (VCSC), the VN-Index has failed to move above the 492.44 high for a third consecutive day and the short-term momentum is now flattening above the zero line. This indicates more consolidation or minor pressure to occur.

“We therefore changed the short-term rating to ‘neutral’. For a short-term rating change to ‘down’, a close below 474.4 must occur while a good support can be found at 475 points. Only a break above the 492.44 high would suggest further strength or of course, a new short-term momentum ‘buy’ signal. We are waiting for either one to occur before upgrading the VN-Index again. The medium-term rating remains ‘up’ anyway,” it said.

According to VCSC’s surveys, newly opened accounts have increased significantly in recent weeks as confidence recovers and the market remains in an uptrend making the equity market far more attractive than other asset classes such as gold, which has been on a decline, and savings that have been capped by lower deposit rates.

However, although the accounts are funded, these new investors have been waiting for a market correction or clear confirmation of a breakout past resistance levels, the broker commented.

The HN-Index is sitting precariously close to a technical resistance of just below 84 points while the next resistance for the VN-Index will be the psychological 500 points after clearing a strong resistance range of 473-480 in recent days. Without any major supportive news, the market may see a short consolidation phase or a small correction before marching up again.