Prospects of Vietnam’s stock market in 2020

This year, the picture of Vietnam’s stock market is expected to have many bright parts amid the context that the macro-economy is maintained stable, economic growth is positive with the factors, including inflation and exchange rate being managed flexibly and strictly controlled.

Prospects of Vietnam’s stock market in 2020

The global stock markets improved in 2019 but Vietnam’s benchmark VN-Index ended the year by retreating to 960 points after surpassing the 1,000-point mark in early-November last year. 
Ending the year 2019, the VN-Index rose by nearly 8 percent compared to the previous year. However, with a drop of about 80 points, or 7 percent, of the benchmark in November last year, several stocks lost all the achievements that they had accumulated a few months ago, causing investors to suffer losses.

It is said that, for investors, the fact that the market plummeted heavily is an opportunity for them to buy more shares at cheaper prices. In fact, during the last month of last year, the small-and-mid capitalization stock group received the attention of investors after declining sharply previously.

After plummeting heavily, capitalization stock groups also triggered fairly good demand. According to experts, in terms of basic value, based on the prospect of profit growth and the average P/E ratio of listed companies, the VN-Index would have a reasonable valuation of 1,050 points at the end of last year.

However, the cash flow temporarily has not supported this scenario while it is the cash flow that is the decisive factor for the development in the short term of the index. The liquidity on the market dropped drastically last year so the VN-Index closed at 960.99 points.

Regarding this matter, Mr. Tran Van Dung, Chairman of the State Securities Commission, said that although the liquidity on the stock market fell 29 percent, it moved inversely on the bond market. The decline in the liquidity on the stock market was already being expected, not surprising as, amid the context that the trade war and global situation had complicated developments, foreign investment funds tended to withdraw capital so the consideration for new disbursement of investors would also become more cautious.

According to experts, in the context that the global economy is still unpredictable and the developed economies, such as the US, remain positive, it is unlikely that large cash flow from foreign investors will flow into Vietnam this year. Therefore, market liquidity will not improve much this year.

Nevertheless, securities companies still bring out factors that are expected to make the activity of foreign investors in the stock market more positive. These are: key exchange-traded funds are likely to continue to attract money from Thailand and South Korea; Vietnam’s stock market will increase its proportion in the MSCI Frontier 100 by 30 percent when Kuwait is moved to the MSCI Emerging Market; the trade war between the US and China has had improvements and expectation that new ETFs for financial stocks and stocks that run out of foreign room will be approved by the beginning of this year.

At the same time, divestment and equitization activities might become vibrant again this year so Vietnam’s stock market will possibly lure more money from foreign investors.

Evaluating the stock market this year, the representative of Viet Dragon Securities Company (VDSC) said that in comparison with a gloomy picture at the beginning of last year, the situation is partly more optimistic this year. In the last year of the plan for socio-economic development in the period from 2016 to 2020, economic indicators of Vietnam are maintained well.

It is forecast that the VN-Index might fluctuate between 950 and 1,120 points this year. The Government still shows a consistent standpoint in strictly controlling highly speculative sectors, such as real estate and securities.

Therefore, although credit growth will be kept at the same level as last year and the interest rate will be likely to reduce, the stock market will benefit from these developments. In terms of fundamentals, Vietnam has passed other countries in the region in terms of gross domestic product growth as well as inflation and exchange rate control.

The Government has been carrying out institutional reforms along with actions to promote the development of the private sector. Statistics by Bloomberg show that the forecast of net profit growth of the 50 largest capitalization companies on the market in 2020 will be higher than the growth in 2019 (about 22 percent compared to 16 percent).

The biggest risk, if any, still comes from politic development and the picture of global trade rather than domestic issues. Therefore, impacts on market sentiment are insignificant. On the contrary, the positive point to attract domestic cash flow this year is high-profit growth, accompanied by recovering divestment and equitization activities.

According to VDSC, global politic tensions and the recovery of developed economies have been causing frontier markets to be less attractive. Therefore, it is difficult to expect large cash flow from both foreign and domestic investors to join the market, helping the VN-Index to rally.

Instead, the rising tendency will merely happen at separate stock groups, so the bottom-up investing should be promoted this year. Enterprises whose business activities attached to growth from domestic consumption and infrastructure investment are the ones that investors might consider.

Besides, some high-yielding stocks will be suitable for investors who are afraid to take the risk. The Vietnam International Securities Joint Stock Company also said that currently, investors have shifted their attention to high-yielding stocks this year.

Accordingly, industries that are expected to be positive this year include steel and construction when public investment activity is intensified again. Banking stocks might also create new waves as several banking stocks will be listed next year and the application of the Basel II standards will be completed. As a result, the banking industry will possibly continue the mover of the stock market as it is the industry that accompanies the macro foundations.
Looking back at 2019, the economy was growing well but the stock market was considered to have had asynchronous development. However, Vietnam's stock market in 2020 is expected to have more positive factors, especially in the first six months of the year because the year 2019 reserved a part of the space to support the market this year. Along with that, measures to upgrade the market from frontier to emerging have been promoted. It is the pressure from market upgrading that will motivate the regulatory authority to undertake more extensive steps of reform, to meet the requirements of international integration better.

When Vietnam's stock market gets closer to international standards, it will bring new opportunities for development. Especially, after the new Securities Law was enacted, what the market expects is to soon have decrees and circulars guiding the implementation.

By Nhung Nguyen – Translated by Thuy Doan

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