The Vietnamese stock market is trading quite cautiously and calmly at around 1,000 points, despite the economy being highly open and facing many global economic shocks.
N. Gregory Mankiw, a professor of economics at Harvard University, presented in a work on macroeconomics that the concept of “economy” comes from the Greek word (Oikonomos) and it means “steward”, because the operation of the economy is nothing more than a reflection of the aggregate effects of individual behavior. And that is why economics explains, measures, describes and predicts the operation of the economy based on the most basic principles of how people in that economy make decisions and how they interact with each other.
By the same logic, although the stock market reflects the health of the economy, the development of the stock index is strongly correlated to the behavior of market participants such as investors, investment funds, financial institutions, etc.
Since the first stock trading session in Vietnam on July 28, 2000, with only a few trading sessions left to end 2018, VN-Index officially turns 19 years old. Looking at the chart of 18 years of development, the primary trend of the Vietnamese market is growth, with the highlight being two coincident "tsunami" peaks at the 1,200 point area. The Vietnamese market for 18 minors trades quite cautiously and calmly at the 1,000 point area, despite the economy being highly open and facing many world economic shocks.
VN-Index chart over 18 years of establishment and development
Source: Vietstock
However, from a technical analysis perspective, if the resistance zone of 960 is not successfully conquered, the downtrend will increasingly weigh on the index, the prospect of the next correction will be difficult to hold in the 880 area, with the risk of falling sharply to the 600 - 700 area.
On the border between countries, in addition to the flow of trade in goods and services, there is also the flow of direct and indirect investment capital. The trade war has drawn public attention to the importance of the trade balance, the difference between exports and imports, the net export surplus or deficit. In fact, the flow of capital is equally important, because physical capital is one of the most important factors that can promote the productivity growth of a country in the long term, along with human capital, natural resources and technological knowledge. It would be naive to think that an economy can develop without the support of net capital inflows.
The index situation of a stock market is also a factor that determines whether capital flows in or out of a country. Because the nature of investment capital flows, especially indirect investment through the financial market, is ultimately to pursue the goal of seeking profits from investments. If the technical signal clearly shows a downward trend with an amplitude of falling to several hundred points, the market is likely to witness a strong reversal of capital flows, foreign capital is likely to withdraw strongly from Vietnam, especially in the context of the Fed aiming to continue to adjust the target interest rate.
Although, scientific research has proven that the buying and selling behavior of investors in the Vietnamese stock market is herd-like. Over the past 18 years, investors have experienced many ups and downs, profits and losses to mature, and the lessons learned are paid for with expensive tuition fees that need to be remembered to avoid repeating mistakes... Yet, it seems this is a rare moment when the market demands forgetting.… Memories of the days when the market was “empty on the buying side” or “bloodbathed”, or memories of price ranges being “expensive” or “cheap” seem to be wavering along with a strong market differentiation.
To put it simply, a market in its “adolescent” stage will be different from a market in its “teenage” stage. Vietnam is a name that has recently been mentioned in articles analyzing who benefits and who loses in the trade war, and is one of the markets that many experts believe is likely to be among the top beneficiaries. At the same time, it is a market in the group of markets being monitored for upgrading to increase the proportion of investment capital, an economy preparing to enter the emerging period, and is witnessing a strong effort to reform institutions and reform the Securities Law to bring Vietnam into line with and integrate with the international community.
If the 2018 GDP is an economic indicator that measures the market value of all final goods and services produced in Vietnam in 2018. The VN-Index is capable of measuring expectations for the continued development of the Vietnamese economy in the future, the stock market reflects future expectations, not just the current health of the economy.
In times when facing important resistance levels like today, whether the VN-Index can overcome it or not depends on the assessment of each market component about the development of the economy in general and of each listed enterprise in particular.
So what about you, is your confidence that Vietnam's economy is on the threshold of development strong enough or are we simply entering the recession of an economic cycle, entering a hibernating bear market?
The answer to this question is the prospect of VN-Index, the history and lessons of the 2008 youth market that need to be forgotten...
Source: Vietstock
