Though the benchmark VN-Index has lost nearly 19 percent this year, the bank said it was confident about the long-term prospects of the market as companies have been “on a roll” in terms of growth and profits in recent years.
The average earnings per share of listed companies had grown by 35 percent last year, and while trading had dipped in the last few months, the Vietnamese market had surpassed Singapore and Indonesia to become the second largest in Southeast Asia behind only Thailand.
Local retail investors accounted for around 87 percent of trading.
Though foreigners had been mostly withdrawing from the market for nearly three years, they “have started to dip their toes into this market again” in the past few weeks.
This was because only seven of the 30 biggest stocks on the main bourse, the Ho Chi Minh Stock Exchange, had reached their foreign ownership limit.
Overall the VN-Index had a foreign ownership limit of 44 percent, and current foreign holdings were at less than half of that at around 20 percent.
“In short, foreign ownership levels in most cases no longer limit foreign investors from buying.”
Another contributing factor to growth prospects was the country's vibrant exports sector.
In March Vietnam's exports had topped $34.7 billion, higher than the $18.3 billion by China's biggest exporting city Shenzhen.
Foreign direct investments were a key driver of Vietnam's economic growth, with three-fourths of exports being from sectors with strong foreign investment.
In the past few years Vietnam had been making it easier to set up a business and simplified the land registration and loan processes. This, along with the low cost of production, made it the place to set up a new factory.
A report by U.S. think tank Brookings Institute said with the percentage of population categorized as upper middle class set to quadruple to 20 percent by 2030, Vietnam is set to become the 10th largest global consumer market by then.
Vietnamese consumers look set to overtake their Turkish, Thai and British counterparts by the end of this decade, and Vietnam's consumer market would likely be bigger than Germany's by 2030, it said.
HSBC said the stock market was also on track to achieve emerging market status, with the government doing its best to reform it and bring it closer to international standards.
Issues that needed to be resolved for the upgrade included foreign ownership limits, the lack of disclosures in English, the lack of an offshore currency market, and limitations in the onshore currency market.
Vietnam was yet to make it into Morgan Stanley Capital International's emerging market watch list, but could fulfill the necessary criteria before the next review in May 2023 if certain reforms were undertaken.
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