|VIR's webinar last week pored over the status of the country's stock market, and the prospects towards 2022|
The year 2020 and the first half of 2021 were fraught with challenges as the pandemic put a damper on global markets and while shaken in the short term, Vietnam's secular growth prospects remain solid in the eyes of international financiers.
Le Anh Tuan, deputy CIO and head of Research at Dragon Capital said foreign investors are currently keener on passive investment strategies, particularly in the context of foreign ownership limits at listed companies.
"Passive funds, including exchange-traded funds (ETFs), have generated a lot of buzz recently. ETFs are often a cheaper and more efficient alternative to other investment funds despite high volatility," Tuan said.
In the past eight months, foreign net withdrawal has exerted pressure on the whole market. Pham Hong Son, vice chairman of the State Securities Commission (SSC) said at VIR's webinar on stock market opportunities last week that this was mainly due to the 3-year business cycle and a shift in investment flows to other potential areas.
Like in many emerging and frontier markets, foreigners have been moving their money to safer havens like developed markets or other assets, Son explained. South Korea, for instance, is now enjoying a bonanza, drawing in investors. As Vietnam's success in fending off the pandemic longer mean it is somewhat behind the curve, it can expect international investors to return in about three months.
"At the same time, foreign net selling has been gradually decreasing as foreign investor confidence rallies thanks to the mass vaccination rollout. We believe foreign capital could find its way back to Vietnam in the next 3-6 months," Son said.
In the same vein, Le Quang Minh, head of Research at Mirae Asset Securities, also believed that the foreign net selling trend and the drop in liquidity recently are inevitable in the short run but are no real cause to worry.
"The resurgence of the pandemic with more variants has taken a toll on Vietnam's stock market, for both foreign and local investors. As other developed markets such as the US, Japan, and South Korea edge back to health, international funds are finding their way back to their home country and other lucrative arenas. But in the longer term, their appetite in Vietnam will be stronger than ever. Many funds from South Korea have reached out to us and expressed their keen interest in Vietnam," Minh emphasised.
Long-term investors should not be panicky about short-term losses in times of economic disruption. This was affirmed by Nguyen Thi Phuong Lam, director of Analysis and Investment Consulting at Viet Dragon Securities Corporation, who added that regional markets also recorded a 10-15 per cent decrease during peak pandemic times, so there is good reason to expect investment flows to return once the health crisis is under control.
Tuan of Dragon Capital also warned investors against panicking over short-term losses of 5-10 per cent. "We see solid growth prospects for 2022," he said. "We recommend investors to consider buying stocks of financially sound corporations when the index is in the resistance zone of 1,200-1,250 points. Stocks generally outweigh other assets, such as fiat currencies like the USD or gold."
Le Trong Minh, editor-in-chief of VIR also said, "Ongoing disruption is happening on a national scale and poses a threat to the global supply chain of many industries and some major publicly-listed companies. However, the government is making efforts to accelerate public disbursement projects in the second half of the year, particularly key works such as airports and highways. I believe this will lay a foundation for Vietnam's stock market to attract both institutional and retail financiers."
There are positive developments in the market to support active trading in H2, including coming to terms with the US over Vietnam's foreign exchange policies and revitalising the Ho Chi Minh City Stock Exchange (HSX).
According to experts, the recent mutual arrangement between the US Treasury and the State Bank of Vietnam on currency policy provides space for Vietnam to apply a flexible exchange rate policy to ensure its resilience while putting to bed allegations of currency manipulation. As a result, many world-class funds, which are negotiating future investments here with Kinh Bac, are now looking to ramp up their presence in Vietnam.
Meanwhile, Son of the SSC said at the webinar that various improvements are underway to improve trading in Vietnam. "We are ramping up efforts to build a comprehensive legal framework for a central counterparty clearing system, intraday trading, and non-voting depository receipts. This is in line with the government's strategic plan to upgrade the status of the local market," Son explained.
Once Vietnam turns the corner, returning traders will be greeted with a much-improved trading infrastructure on the HSX, which is currently undergoing a technical facelift with the help of FPT and will adopt the trading system of the Korean Exchange. Nguyen Thi Phuong Lam from Viet Dragon Securities predicted, "In Q3, positive economic growth will be difficult to reach since most industries are bearing the brunt of the outbreak. The progress of the country's mass vaccination programme will be crucial in the decisions of foreign funds."
Nguyen Son – Chairman, Vietnam Securities Depository Center
In addition to the legal framework issue, the foundation of the technology system plays a crucial part in stock market development. The new adoption of the Korean Exchange trading system will help us to roll out more products and boost operations in the coming months.
There are two tasks that the Vietnam Securities Depository Center needs to well-prepare on the basis of the new system, which is the adoption of a central counterparty clearing house applying for both underlying and derivative securities.
If this is successfully integrated, investors do not need to deposit 100 per cent of their money before executing any orders.
This also aims to address foreign investors' concerns over the current margin that Vietnam is applying when purchasing stocks.
Nguyen Thai Phien – Deputy general director, NovaGroup
Vietnam's stock market has become an effective capital mobilisation channel for listed companies. When the long-term macroeconomic outlook is good, enterprises have a clear and effective strategy, with most looking to take advantage of to issue shares and raise capital for investment activities, to pad out their financial reports.
Novaland has recently performed several transactions on the domestic equity market and the international debt capital market, which were very efficient. These transactions did not affect the market too much. The further issuance of shares by Novaland will not oversupply the market because investment institutions and individual investors have been understanding their investments and looking at the nature of the business rather than its day-to-day fluctuations.
Nguyen Thi Phuong Lam – Director of Analysis and Investment Consulting, Viet Dragon Securities Corporation
Market liquidity has decreased remarkably compared to the average in H1. The market has been experiencing consecutive net selling by foreign investors and depends more on local investors for growth. The time of making easy money has passed and investors now need to consider their steps more carefully.
We believe that Vietnam's economic growth in Q3 will be worse than last year or even negative due to the current outbreak of COVID-19 and prolonged social distancing in big cities and industrial zones.
However, we expect the vaccination process to boost investors sentiment and if it can be accelerated in big cities like Hanoi and Ho Chi Minh City, the stock market will not be far behind.
Le Quang Minh – Head of Research, Mirae Asset Securities
The slowdown in liquidity on the Vietnamese stock market is only temporary and will soon recover.
If the pandemic is controlled soon, the business results of H2 will not be affected. Furthermore, developed countries are now coming to grips with the pandemic so global consumption and trade is expected to recover soon.
Mirae Asset has revised its second-half forecast for earnings per share, from 28 to 33.8 per cent. If this increases 30 per cent, then the P/E ratio will decrease and this would be an opportunity to buy in.
We forecast Vietnam to remain a bright spot in Southeast Asia. Its optimistic prospects will help Vietnam maintain its momentum, which counts a great deal for investors.
If the outbreak can be brought to heel in big cities within August, cash flows will return as cash reserves are abundant. We forecast that many businesses and industries will maintain good growth in Q3.
Nguyen Thi Viet Ha – Acting chairwoman, Ho Chi Minh City Stock Exchange
The KRX trading system that the Hanoi and Ho Chi Minh City stock exchanges, as well as the Vietnam Securities Depository, will deploy is a very complex integrated system that not only aligns with international practices but is also adjusted to suit Vietnam.
While this makes implementation difficult, I am pleased to announce that the project has entered the internal testing phase for the three platforms.
We have also been conducting combined testing with 21 securities companies since the middle of June this year, which we expect to finish in the middle of August.
After this period, we will then roll out the test phase with all market participants, before a final test of everything.
The system will allow odd-lot and T0 transactions, with a separate table to expand the processing capacity of the system and support many new products.
We are confident that the KRX system will be operational in the new year.
Dang Thanh Tam – Chairman, Kinh Bac City Development Holding Corporation
In 2020, Vietnam managed the health crisis well, so foreign investment into the country decreased only slightly. Stock trading activity remained high, with some trading sessions reaching a strong VND20-25 trillion ($870 million-1 billion).
Big foreign businesses are still very keen on Vietnam and have invested as much as $16.7 billion in the first seven months of this year. Just a few days ago, some investors offered to book more land in KBC industrial zones for expansion and new investment.
In 2021-2022, KBC's profits will grow strongly thanks to the relocation of global investments, and industrial parks integrated with accommodation for workers.
This year, KBC's profit grew several times against the year prior, so we are confident that the value of our shares will not be impacted. We have just mobilised capital and issued bonus shares to shareholders.
If managing the pandemic well, I believe that production and business will get better in the third and fourth quarters, while the stock market will be able to boom in the last months of the year.
La Giang Trung – CEO, Passion Investment
Emergencies and financial crises have a strong cyclical effect on the Vietnamese economy, which is strongly tied to the world economy, especially the US. After every crisis, once the US economy seems to be out of the tunnel, Vietnam also steps on a path to recovery.
This was the same after the 2009 recession, and it is the same way with the pandemic: the recession ended in the US in April 2020, and since then the US and its stock market have been recovering after finding the bottom in March – and Vietnam will follow.
If the cycle is long, this growth can last 7-10 years. Our investment is based on long growth cycle, so short-term corrections should not be a problem. Statistically, the average correction span in Vietnam is 17 per cent for an average time of six months. Since March 2020, there have been three adjustment spans. With Vietnam's economy continuing to recover, the stock market is going up. We expect the VN-Index could go up 30-40 per cent to 1,600-1,700 points by the end of this year.
Thai Huu Cong – Analyst, KB Securities
The previous stock trading system works on two basic principles: the daily capacity of 900,000 stock orders and the even distribution of stock orders to securities companies. It could not handle the recent sharp increase in trading on the HSX.
The new trading system allows the HSX to handle 3-5 million stock orders a day, a more than 3-5-fold increase, which will address congestions. Besides that, the new trading system of FPT can distribute stock orders based on the capability of the securities companies. In Q1/2021, the top 10 securities companies out of 73 accounted for 65 per cent of the market share. The old distribution system could not meet the demand of big securities companies while small ones had more than enough room to trade.
We are thrilled about the upcoming instalment of the trading system from the KRX in August. We hope the new system will boost liquidity on HSX and provide smoother infrastructure.
Le Anh Tuan – Deputy chief investment officer and head of Research, Dragon Capital
Foreign investors have withdrawn around $1.7 million from the stock market since early this year and around $4 billion over the last three years in addition to that.
Furthermore, margin lending increased dramatically at companies, so the market will need more investors with their own capital to grow, along with returning foreign cash flows and new cash flows replacing the old ones.
The majority of international investors believe that the current market liquidity of VND25-30 trillion ($1.1-1.3 billion) on the Ho Chi Minh City Stock Exchange is not sustainable and cannot be maintained for a long time. A liquidity of VND15-17 trillion ($652-739 million) would be more suitable.
In 2022, P/E ratios of 11-12x will not be expensive. If they are confident of market growth next year, investors would do well to make their moves when the VN-Index hits 1,200-1,250 points.
The COVID-19 pandemic has of course been a blow to the stock market, but bringing it under control will also result in standout growth.
By Nhat Minh
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