Vietnam’s benchmark VN-Index has been one of the 12 best performers in the world so far this year, according to global market data provider IndexQ.
Recent developments on the VN-Index, which represents the Ho Chi Minh Stock Exchange (HoSE), have far exceeded many investors' forecasts. As of August 31, the main index had reached 1,224.05 points, up 0.95% from the previous session and 21.54% compared to the beginning of the year.
Experts attributed the positive performance to strong cash flow from domestic individual investors. Data from the Vietnam Securities Depository (VSD) shows that in July alone, they opened 151,000 new securities accounts, up over 3% from the previous month (146,000 accounts), marking the highest monthly number in the past year.
Experts said that the attractiveness of the stock market to individual investors stems from the State Bank of Vietnam’s (SBV) four policy interest rate cuts so far this year. Accordingly, the refinancing interest rate has dropped 150 basic points to 4.5%.
The 12-month deposit interest rates at major banks in Vietnam, domestic and foreign, have fallen below 6% this month. The six-month deposit interest rates, barring some outliers, fell to a maximum of 7% starting mid August.
As deposit interest rates are expected to fall further, many experts predicted that idle money will continue to shift to the stock market, especially when high-interest deposits from the end of last year will mature in the second half of this year. The increasing number of new investor accounts and skyrocketing market liquidity have partly proved this forecast.
In parallel with the massive cash flow into the stock market by individual investors, transactions by foreign investors have also tended to be positive as their net selling momentum has shrunk. In July, they net sold VND24 billion ($996,500), marking the fourth consecutive month of net selling, but much lower than the figure of VND269 billion ($11.17 million) recorded in June.
Other support came from the business recoveries of listed companies. According to leading broker VnDirect, the Q2/2023 net profit of companies listed on the Vietnamese stock market decreased by 12.9% year-on-year, compared to a sharp fall of 19.3% in Q1.
More importantly, the positive performance of the VN-Index was also based on expectations of a recovery in Vietnam's macro economy. VnDirect forecast that the country’s GDP in the second half of 2023 will grow by 7.1% over the same period last year, thereby pushing the whole-year figure to 5.5%. Vietnam's economy will maintain its recovery momentum in 2024 with GDP growth forecast at 6.9%.
Narrowing investment opportunities based on "cheap" valuations
In 2023, the VN-Index is expected to continue to be supported by information on rapid disbursement of public investment packages, further interest rate reductions, and the testing of a new trading system provided by the Korea Exchange (KRX).
On the contrary, challenges to the index include recession risks in the U.S. and the EU; a slower recovery of Vietnam's economy or weakening business profits; the market overheating due to speculative activities of individual investors, and others.
However, in general, analysts have given a positive assessment of the Vietnamese stock market for the rest of 2023.
Bao Viet Securities Company (BVSC) believed that improved business results in the second half of 2023 and 2024 will help bring the VN-Index back to a more attractive level. In the medium term, the broker expected the main index to target 1,300-1,350 points.
Similarly, Viet Dragon Securities Company (VDSC) held that the VN-Index will hover around the territory of 1,180-1,320 points. When short-term risks are temporarily pushed back, investors can consider using financial leverage at a reasonable level to increase the efficiency of their investment portfolios.
From a more cautious perspective, DSC Securities Corporation (DSC) assessed that with the Q2 business picture, the main index's upward momentum is still largely based on expectations, pushing the valuation into the "overbought" zone. Therefore, it held that investment opportunities based on "cheap" valuations have narrowed.
According to DSC, macroeconomic recovery and business growth are not clear in the third quarter of 2023, so the market needs a "rest" before entering a cycle of looking for new investment opportunities. Therefore, the broker recommended a defensive trading strategy that does not use large leverage, adding investors need to be careful when investing in midcaps.
DSC also put forth two scenarios for the VN-Index. Firstly, the benchmark index will keep rising towards the target of 1,270 points. Secondly, it will fall to the 1,200-point threshold and find a new balance point.
Sharing DSC's view, Nguyen Hoai Phuong, investment director at VinaCapital Fund Management JSC, believed that the price to earning (P/E) ratio of the entire market in 2023, excluding the banking group, will reach about 21, equivalent to the levels seen during the cash flow boom in the first quarter of 2018 and the second quarter of 2021.
With the current new investment environment, Phuong said that investors need to have flexible strategies in line with market fluctuations and events. Not only investors but also production businesses should stop applying "just in time" strategies and switch to "just in case" strategies, targeting flexibility to deal with market fluctuations.