Super Typhoon Yagi drives steel stock prices up

Recent growth in steel stocks is reflecting investor optimism about increased demand for construction materials in the wake of Typhoon Yagi.

At the close of trade on September 16, the VN-Index had dropped12.45 points, landing at around 1,239. The telecommunications sector experienced the largest decline, with a drop of 2.45 per cent, followed by the real estate and IT sectors.

However, many stocks defied the overall trend, most notably in the steel sector, where investors expected that the damage caused by Typhoon Yagi would boost demand for roofing sheets and construction steel. Hoa Phat Group (HPG) and Hoa Sen Group (HSG) were the standout stocks, both leading the market in terms of liquidity.

Steel stocks also saw strong price increases. By the close of the trade, shares in Hoa Phat Group had risen 1.61 per cent, Hoa Sen Group by 2.04 per cent, Nam Kim Group by 2.43 per cent, Vietnam Germany Steel Pipe by 2.31 per cent, and Tien Len Steel Group by 0.36 per cent.

"After each storm and flood, there is generally increased construction demand, which benefits the steel sector. However, this is not a long-term story. Looking back at the steel sector’s performance following major storms, the upward trend in steel stocks hasn’t lasted, except in 2016," said Nguyen The Minh, head of research and development for retail clients at Yuanta Securities Vietnam.

"In reality, the steel sector is facing difficulties due to sluggish export growth and weak domestic demand as the real estate market hasn’t recovered as expected. Therefore, steel stocks may soon return to reflecting the underlying fundamentals of the industry," he added.

In fact, the sharp increase in steel stocks at this time is partly coincidental with investor optimism, as many stocks have already undergone significant corrections. For instance, HPG saw a maximum decline of over 6 per cent in the second half of August and a total drop of around 17 per cent from its June peak.

Taking a more cautious view, experts at KB Securities Vietnam noted that the steel sector remains one of the weakest stock groups in the market.

"The current price trends of steel stocks are influenced by the overall market conditions and global steel price trends. In the near-term, the price increases driven by the demand for reconstruction and repair of civil infrastructure affected by Typhoon Yagi will be short-lived. Investors interested in steel stocks should adopt a long-term view. In contrast, short-term investments in this sector are not encouraged due to the current weak price support factors," KB Securities Vietnam said.

By Hazy Tran (vir.com.vn)