Investment & Finance

Economy headed toward a K-shaped recovery

(ĐTTCO) - The stock market is the best monitor of the economy, indicating clearly if the economy is growing in both manufacturing and business activities. Both the economy and the stock market have always moved simultaneously. 

Although jobless is high, US stock has risen sharply.

Although jobless is high, US stock has risen sharply.

However, 2020 has proved to be a strange year when the economy is going down but the stock market is going up. This is indicative of a K-shaped model recovery, rather than the usual V, W or U type models.

Stocks continue to rise

In the first half of 2020, Germany, the fourth largest economy, officially fell into recession showing negative growth for two consecutive quarters. The number two economy in the world is China, which also showed negative growth in the first quarter of the year. The Australian economy at thirteenth place, also officially fell into recession.

However, the US stock market reached a historical peak, while the Vietnamese stock market too increased strongly. At the end of the third quarter of 2020, the stock market continued to shine despite the ongoing Covid-19 pandemic and a gloomy overall economy. In the last six months, the stock market has risen hugely, with many markets even surpassing increase in gold price.

Although the VN Index is still a few dozen points away from the peak at beginning of the year and 300 points from the historic peak of 2018, it has increased by more than 40% since the lowest bottom at end of March. The HNX-Index increased on par with VN Index and UPCOM-Index had a smaller increase, about 30% from the bottom, but both surpassed the peak at the beginning of the year by far. This situation is quite similar to US stock when the main indices, Nasdaq and S&P 500, continuously peaked, but the Dow Jones Industrial (DJ30) has yet to reach this level.

Vietnam's stock market ended to a glorious third quarter and ranked 4th in top ten most powerful markets in September, behind Mongolia at 4.27%, Turkey at 4.06% and Denmark at 3.48%. In August, VN Index saw the strongest increase in the world with nearly 10.5% and was one of the ten most powerful indexes in the third quarter and the last six months. In the third quarter, VN Index increased by 9.71% and stood at sixth place. The massive cash flow to catch bottom helped the VN Index to continuously go up and many stocks even surpassed pre-pandemic level.

Global retail individual investors are winning against big investors in the current Covid-19 pandemic scenario, as they are contributing aggressively. These people are bored staying at home in a lockdown, or there are some who have lost their jobs and are trying their luck in the stock market, which is safe and convenient to use. In South Korea alone, individual investors have contributed 65% to trading value at the Kospi index this year, compared with 48% last year, and the majority of these investors are between the ages of 20 and 30. Vietnam as well as many other countries are producing their share of enthusiastic investors who are strongly supporting the stock markets.

Tech-groups remain strong

Although the stock market increased strongly, the number of investors losing money were plenty, some were even very large investors. Data from the world leading investment fund of the Norwegian Government announced a loss of nearly 3.5% in the first six months of 2020, equivalent to 188 bn kroner or USD 21.3 bn. The total market value at the end of June 2020 amounted to nearly USD 1,200 bn, with nearly 70% in stock investments, 27.6% in fixed income and 2.8% in real estate.

Although revenue from fixed income increased by 5.1%, securities investment lost nearly 7% and real estate was negative by 1.6%. The proportion of shares in the fund portfolio had 44% in North American stocks, a decrease by 2.6%, and European stock decreased by 11.7%, while Asian stock decreased by 4.6%, and emerging markets fell to 7.3%. Oil and gas was the worst performing sector, down about 33%. Technology was a rare field which saw a positive return of 14.2%.

Technological groups and related industries have benefited the most from the Covid-19 pandemic. The Nasdaq and the S&P 500, which are full of tech stocks, have hit an all-time high record for three consecutive months. Apple once set a new historic record with USD 2000 bn, and it only needed two years to rise from USD 1,000 bn to its current level, although it took 42 years to reach a capitalization of USD 1,000 bn. Covid-19 pandemic is again an opportunity for Apple when share price increased to 120% in just one year and 60% since the beginning of 2020.

Tesla stocks have increased six times, making Elon Musk the third biggest billionaire in the world, although the company has never been profitable during its 17-year history, but since listing ten years ago the company shares have increased a hundred times. Facebook shares have increased by 30% since the beginning of the year, and Amazon has spiked nearly 80%, with Netflix touching an increase of 50%. Among the top ten billionaires in the world, eight billionaires are in technology or related to technology, while two billionaires who lost wealth are non-tech, namely, Warren Buffett in investment and Bernard Arnault in luxury fashion.

In the US stock market since the beginning of the year until September, the technology, media and consumer groups rose 32%, 18.4% and 17%, respectively. The Dow Jones index, which has mainly traditional industry, saw lower increase and could not surpass the peak set in February 2020. The Kospi index in South Korea has risen 8% this year, while the Kosdaq index which focuses on technology groups was up 28%. The three worst performing sectors were energy, finance and utilities, down by about 40%, nearly 19% and almost 8%, respectively.

Major US banks closed their books in the third quarter with profits dropping from 30% to 60% year-on-year. JPMorgan Chase & Co and Bank of America Corp. ranked first and second in terms of assets, which are expected to see a drop of about 30% in profit as well. Citigroup Inc. and Wells Fargo & Co., America's third and fourth largest banks saw net income decline by about 60%. Investment banks Goldman Sachs Group Inc. and Morgan Stanley are expected to report slightly lower margins by about 5% to 10%.

In the Vietnamese stock market, although technology shares saw very good growth, they are not too prominent, because technology shares do not account for a large number. However, this is the new trend as seen by Vingroup (VIC) who is transforming into a technology corporation, and now seeing a significant increase in stock shares.

However there are still many difficulties. A recent survey in early October by market research company, Infocus Mekong Research, showed that consumer confidence in Vietnam has fallen to an unprecedented low in last twenty years, despite the successful efforts of the Government in containing the Covid-19 pandemic and the Vietnamese economy on way to recovery. Survey results show that only 5% believe that this year the economy will be better than last year, which is a sharp drop from 70% in a similar poll in January. These figures show a marked change in consumer confidence in Vietnam, which ranks as one of the most optimistic in the world.

Phan Dung Khanh Investment Advisory Director, Maybank Kim Eng. Securities Company

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