Bears Assert Dominance Over Markets

Weekly Markets Snapshot

• U.S. Treasury Yield Surge Shakes Frontier and Emerging Markets with Sell-Offs

Behind the Headlines: What happened?

In the week ending October 20, 2023, emerging-market stocks faced heightened losses, primarily driven by the increase in US Treasury yields and growing apprehensions about a broader conflict in the Middle East. As a result, investors have been shedding riskier assets, causing the MSCI emerging markets index to decline by over -2%. Country-specific indexes started the week in the red. Shanghai lost -0.46%, Shenzhen fell -1.42%, Hang Seng in Hong Kong was down -0.97%, while Nifty50 and S&P BSE Sensex in India declined -0.10% each. As the week progressed, shares rebounded following a U.S. stock rally that eased concerns about the Middle East conflict. Shanghai gained 0.32%, Hang Seng added 0.75%, BSE Sensex advanced 0.39%, and Nifty50 showed a healthy increase of 0.40%.

Source: Market Watch

Despite this mid-week recovery, emerging country indexes saw losses accumulate toward the end of the week, resulting in a 5-day loss. Notably, the Shenzhen Composite posted the highest 5-day loss of -4.98%, followed by the Hang Seng with -3.60%. The Shanghai Composite declined -3.4 %, the KOSPI Composite was down -3.30%, the BOVESPA index in Brazil faced a -2.25% loss, and the S&P BSE Sensex in India saw a -1.34% decline. The Nifty50 in India experienced the smallest loss at -1.06%.

Similarly, in the same period, the MSCI frontier market index weathered four consecutive days of losses before finally recovering with a 0.66% gain on the week’s closing day. However, this comeback was not sufficient to prevent a week-on-week loss of -2.27%, predominantly driven by profit-taking activities that negated the gains of the preceding week.

Vietnam, the largest contributor to the index, experienced a significant -5.56% decline, leading the list of countries with week-on-week losses. Following Vietnam were Oman with a -3.65% decline, Mauritius with a -2.33% dip, and Nigeria, which posted a -2.12% loss by the week’s end on October 20, 2023.

Source: MSCI Frontier Index

Conversely, bullish sentiment prevailed in the Pakistan stock market, delivering a notable 1.36% increase. Pakistan was closely trailed by Slovenia and Kenya, with positive returns of 0.64% and 0.58%, respectively, during the same week.

The Inside Scoop:

A dive into the Nifty50 index reveals a 1-month return of -0.67%, reflecting recent challenges. Over 3 months, the index also shows a negative return of -1.02%.

Source: Market Watch

However, when you examine the year-to-date (YTD) performance and compare it to a year ago, the return becomes positive. The YTD return stands at a healthy 7.94%, while the 1-year return is even more promising at 11.19%. These indicate a stronger and more resilient performance over extended time periods, notwithstanding recent short-term fluctuations. Within the Nifty50, notable gainers have made their mark. Kotak Mahindra Bank takes the lead with a return of 1.79%, and this gain can be attributed to a positive Q2 report. Indusind Bank, which returned 1.29%, also reported positive trends in its Q2 report, with the private lender’s net profit rising by 22% year-on-year to Rs 2,202.2 crore. Tata Consultancy Services delivered a 1.13% return, while SBI Life Insurance Company and NTPC also posted positive returns of 1.08% and 0.63%, respectively.

The Vietnamese stock market has also been impacted by the recent appreciation of the dollar in the wake of the monetary policy tightening cycle by the Fed. The interest of foreign investors in Vietnam’s stock has decreased in recent times, aligning with the trend of capital outflows in frontier markets due to a stronger dollar. The surge in global geopolitical tensions in the past few years has reshaped investors’ priorities, with safety outweighing profitability concerns. This shift has ushered in a more cautious approach to financial markets.

Connecting the Dots:

For Tata Consultancy Services (TCS), its Q2FY24 report recorded INR Revenue of ₹596,920 million, indicating a significant 7.9% year-on-year growth. USD Revenue stood at $7,210 million, reflecting a healthy 4.8% year-on-year increase. TCS also demonstrated strong operational performance, with an Operating Margin of 24.3%, surpassing the 23.2% from Q1FY24. Additionally, their Net Margin increased to 19.0%, up from 18.6% in Q1FY24, highlighting improved profitability. 

Source: Company’s Financial Statements

Analyzing the trends in operating and net margins across specified quarters, it becomes evident that the operating margin fluctuated within the range of 23.2% to 24.5% over the mentioned periods, with a temporary dip in Q1FY24 followed by a recovery in Q2FY24. On the other hand, the net margin exhibited variability, moving between 18.6% and 19.3%. Notably, there were improvements in Q4FY23 and Q2FY24 after slight declines in Q3FY23 and Q1FY24.

Zooming into the frontier markets, Stanley Brothers Securities Inc. emerged as a standout gainer in the week concluding on October 20, 2023, within the Vietnamese stock market, achieving a remarkable 43.37% surge in its share price. The surge stood in stark contrast to the overall bearish sentiment that dominated the market. The impressive performance of Stanley Brothers Securities can be attributed to favorable investor sentiment directed toward securities companies in the market. Most securities businesses reported robust earnings results for Q3’23.

Source: Vietnam News

VIX (VIX Securities) saw a remarkable 143% Q3 pre-tax profit increase to $10.2 million, driven by higher market transaction volumes, leading to a 77% revenue increase to $13.3 million. Brokerage profits surged by 44.2%, and lending income increased by 154%.

MBS (MB Securities) posted strong Q3 results with total revenue exceeding $22.3 million, marking a 24.7% increase YoY, and pre-tax profit surged by 37.7% to over $8.6 million. This growth was attributed to increased stock transactions, boosting stock brokerage revenue by $2.6 million.  These results highlight the significance of brokerage, self-trading, and lending activities in driving revenue and profits in the securities sector.

The Bottom Line:

As we look ahead to the upcoming trading week, various factors will be influencing the equity markets such as crude oil price movements, global trends, and quarterly earnings reports which are expected to be key drivers of market activity. This coming week will be shortened due to the Chung Yeung Day holiday in Hong Kong on Monday, October 23, 2023, followed by the Dussehra holiday on October 24, 2023, in India. Market participants will closely monitor important data releases, including exports and import data, as well as the trade balance for September, scheduled for Wednesday, October 25, 2023, in Hong Kong. Additionally, the Brazil Mid-Month CPI which was previously 0.28% is anticipated to be published on Thursday, October 26, 2023, Analysts forecasted 0.38% which is unlikely due to prevailing economic drawbacks. Also, the Chinese industrial profit data follows on Friday, October 27, 2023.

In Vietnam, investor sentiment towards securities companies currently remains bullish, driven by the perceived potential for strong investment returns amid predictions of robust Q3 business performance. Notably, the market valuation for Vietnam stocks is considered highly attractive, with prices currently at their most affordable levels in the past decade.

While capital inflow into the market is presently subdued, the overall valuation reflects compelling opportunities. As more companies unveil their Q3 earnings reports, their performance is poised to be the primary influencer of market dynamics throughout October.

However, it is vital to acknowledge the shadow of global uncertainties, including the geopolitical tensions in the Middle East and broader market unpredictability, which might induce a measure of caution among investors. In such a climate, market sentiment may lean towards vigilance in the face of potential headwinds.

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