When is the right time to buy Vietnamese stocks?

In a market dominated by retail investors and highly sensitive to short-term information, persistence can create an advantage over time, stated Dragon Capital, a leading investment fund management company in Vietnam.

Vietnam’s benchmark VN-Index closed at 1,693.21 points on Monday, down 0.18% from the reference level. After three consecutive sessions of losses, the index fell below the 1,700-point mark. It closed Tuesday up 17.08 points at 1,710.29, reclaiming the 1,700-point mark.

Although the market’s price-to-earnings ratio is currently over 14 times, many investors remain hesitant, waiting for the index to reach its “bottom.”

According to Dragon Capital, accurately identifying the market bottom is not crucial. In a market where most investors react strongly to short-term fluctuations, persistence can become an advantage over time.

Instead of assuming investors must “buy at the bottom,” the asset manager examined 75 different starting points - earlier than, later than, and exactly at the bottom - to determine whether investment outcomes truly depend on timing the market perfectly.

The analysis was based on three major periods of volatility in Vietnam’s stock market.

In 2018, the market’s historic peak of 1,211 points was wiped out as the U.S.-China trade war pushed the VN-Index down 26% within six months, with no clear signal indicating when the bottom would occur.

In 2020, the Covid-19 pandemic triggered the largest shock in modern market history, sending the VN-Index from 1,204 points to 662 points in just six weeks.

Then in 2022, problems in the real estate sector, turbulence in the corporate bond market and rising interest rates caused the VN-Index to fall 40% over eight months, with no clear indication of where the downturn would end.

For each period, Dragon Capital analyzed 25 investment scenarios, representing 25 investors who began investing in 25 different months, ranging from 12 months before to 12 months after the market bottom. Each followed the same strategy: investing VND10 million ($380) per month continuously without adjustment.

The results showed that after 12 months of regular investment, DC Dynamic Securities Fund (DCDS) outperformed the VN-Index in 83% of cases. The rate rose to 95% after 24 months and reached 100% after 36 months. In other words, the longer investors maintained regular contributions, the higher the likelihood that DCDS would outperform the index.

When the data was broken down by major market events, a similar pattern emerged. After 24 months of periodic investment, DCDS outperformed VN-Index in 84% to 100% of cases. After 36 months, the fund outperformed the benchmark in all scenarios.

The results also showed little difference whether investors started before, at, or after the market bottom. Among those who began investing before the bottom, all 36 out of 36 cases saw DCDS outperform the VN-Index after 24 months.

For those who started exactly at the bottom, each crisis had only one month considered the market’s lowest point, resulting in three cases in total. All three recorded outperformance by DCDS.

Even investors who began after the bottom - when many prefer to wait for the market to stabilize - still saw DCDS outperform VN-Index in 32 out of 36 cases, or 89%. This suggests that the results of regular investment remain relatively stable even if investors fail to pick the exact market bottom.

Dragon Capital said the three market events differed significantly in their causes and recovery speeds. Yet all produced the same outcome: investing consistently through volatility generally delivered returns that exceeded the benchmark in the observed data.

The firm added that after about two years of regular investment, performance differences between various starting points largely disappear, suggesting investors do not need to know exactly when the market bottom occurs, they just need to keep going.

“When you invest regularly while the market is still falling, each month you buy more shares at lower prices. When the market recovers, you have already accumulated enough to fully benefit from the rally,” Dragon Capital said.

“This is not luck - it is how dollar-cost averaging (DCA) works: buying more when prices are low and less when prices are high. In a market dominated by retail investors and highly sensitive to short-term information, persistence is not only a virtue but can also create an advantage over time.”