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Bank shares outpace market

Update: January, 03/2012 - 10:51

Analysts' Picks

Viet Nam's stock market extended the December falling streak, with the VN-Index losing 7.7 per cent and the HNX-Index down 2.9 per cent over the previous month. Investor sentiment hit the lowest point of the year as well. However, despite the strong market decline, there are several stocks bucking the trend to post high growth rates, such as the banking industry.

The banking indicator, which measures the performance of bank shares, showed a December increase of 4.7 per cent over last month due to the positive performances of Sacombank (STB), Eximbank (EIB) and Asia Commercial Bank (ACB). All were aggressively supported by foreign investment.

During regressions, banks that manage to remain a stable source of revenue and income are highly appreciated. Regardless of regulations on interest rates, banks can provide impressive year-end results. The success of BIDV IPO (Initial Public Offering) in the last days of December once again proved the positive outlook of banking stocks in this current market downturn.

Recent restructuring of the banking system only directly affected small and less efficient banks, while stable and mature banks faced no harm. In some particular cases, big banks were able to take advantages of smaller banks in acquisition and restructuring.

Regardless of low market sentiment, banking shares managed to draw attention from investors. Most shares had better liquidity than the previous month as investors increased their buying and buyback treasury activities. During a market downturn, the consistency of local banks' performances creates a special interest for long-term and base investments.

The buying back of 10 per cent of outstanding shares and the newly established strategic partner Credit Suisse have supported the share price of STB throughout December. With a highly credited partner, STB is expected to create more competitive advantages in the field.

Stable demand was consistent during the last three months, which helped the share continue its upward movement. The share price of STB has been in an upward trend since May 2011 and is currently accumulating at the second base.

Momentum since the beginning of the month has been quite stable as it is supported by good liquidity and demand. A middle accumulation period will provide more certainties to the rally. A price of VND20,000 (US$0.95) is reasonable for mid- and longer-term investment. Therefore, the share is expected to hold position.

EIB is another interesting case as the share price has managed to remain positive without any supportive information. Since the end of 2010, the share price has been moving in a stable range before a recent rally in the last two months.

According to technical analysis, these are potential signals for a short-term correction. However, that coming correction might be temporary and the rally is at the second phase of a mid-term upward trend. The short-term target for this rally is determined to be around VND14,500.

Last but not least, ACB has always been considered a defensive stock during recessions despite the fact that it is a share in the financial sector. Since the beginning of November, the share price formed the first base for a rally when it created a reverse U shape despite negative market movement. With consistent demand and a positive outlook from the banking sector, there is a possibility that ACB will increase after this sideways period.

Macroeconomic signals are unlikely to change in the first period of 2012, with the exception of reviving the stock market and real estate sector this year. Meanwhile, the adverse impacts of a tight credit policy and high inflation rate in the last month before Tet (Lunar New Year holiday) still exist. Therefore from both basic and technical analysis, the downward trend is more favourable and the expected bottom will probably be formed after the first quarter of 2012.

For the banking sector, if based on the index six months ago, the index will not change significantly due to fluctuations in a narrow range of some stocks. It is expected that the banking index will continue to fluctuate narrowly in the early months of this year until the market changes. There is the possibility of price increases in last month's high performers such as STB, EIB and ACB. — WOORI CBV

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