Despite a stable macroeconomic environment and the high earnings growth of listed companies, Vietnam’s stock market has long been “undervalued” relative to other markets as it remains a frontier market, according to KB Securities. At a VIR seminar last week, attendees were told that the valuation gap will narrow on market reclassification, which is expected over the next 2-3 years and reflects the positive outlook of the market in the long run.
Tran Duc Anh, head of Macro and Strategy at KB Securities Vietnam assessed, “The dominant factor affecting local and global stock markets in the second half of 2022 is the risk of the US economic slowdown under the impact of inflation, interest rate rises, and the resistance of the US economy against aggressive rate hikes,” Anh noted at the seminar, themed on managing investments in a flexible environment.
“In the base-case scenario, given the low chance of US economic recession in the remainder of the year, Vietnam’s stock market will tend to rebound on positive business results of listed enterprises, thanks to better economic fundamentals like high GDP growth, consumption recovery, export growth, and overseas investment attraction, among others. However, the stock market may experience a steady upswing with alternating ups and downs as market sentiment may sour on rising macro risks,” Anh said.
Other factors that may negatively influence the stock market include domestic inflation, especially in Q3 and Q4, potential risks from the corporate bond market, the central bank’s monetary policy, the pandemic policy in China, the conflict in Ukraine, and oil price movements.
In the first half of 2022, the S&P 500 index saw its worst decline since 1970, and the Dow Jones experienced its greatest decrease since 1962. In the second quarter of this year, the VN-Index for the domestic market decreased by more than 20 per cent from its peak level. Apart from stocks, other investment channels including cryptocurrencies, gold, bonds, and real estate saw significant price and liquidity decreases.
According to economist Le Xuan Nghia, in addition to inflation, other elements are exerted more pressure on the economy of Vietnam, such as the market downturn, decline and limitation of investment channels, including corporate bonds, or real estate.
And Le Trong Minh, VIR’s editor-in-chief, emphasised that after suffering financial losses, many investors have shifted their attention back to more conventional investment vehicles, such as bank savings accounts.
“New investment channels such as digital assets, digital currency, blockchain, and non-fungible tokens (NFTs) have calmed down, but transaction volume is still significantly higher than in the past,” Minh said. “The current dip is only a correction from the market’s peak, but long-term investment channels are still doing extremely well in Vietnam and there is always an abundance of investment possibilities.”
In the same vein, Thai Viet Dung, director of Exness Vietnam, agreed that innovative business and investment models, infused with high technology, are gaining stronger traction as they offer more lucrative value compared to traditional approaches.
“However, as the Fed could raise interest rates by as much as a full percentage point later this month, US investors might hesitate to pour funds into other emerging economies,” Dung said. “Furthermore, earnings and stock values are adversely affected in the case of interest rate hikes. Even mortgages, car loans and business loans have become more expensive, slowing down cash flows.”
Because of the increased interest rates, there is a considerable drive for money to flow into the US from other countries, while countries whose economies are sustained by capital denominated in US dollars run the danger of experiencing both capital pumping and capital flight, Dung added. “We anticipate that the US dollar will continue to enjoy the benefits associated with its position as a safe haven for international investors.”
Forward-thinking investors, as a result, should explore other investment methods to hedge risks and reap better profits, such as CFD (contract for differences) trading. “Choosing a reliable CFD broker with top-notch infrastructure and an international legally-approved platform would take you a long way,” Dung explained.
Le Van Duong, partner at Indochine Counsel, also stated that an increasing number of investors are attempting to seek financial rewards by diversifying their portfolios, preferably a mix of traditional and new investment approaches.
“I would highly recommend everyone should thoroughly study their field of interest, with a solid legal background, to avoid potential risks arising. With the emerging financial products inspired by technology, investors should be well prepared with up-to-date legal documents to protect their interests,” he shared. “Besides legal and financial due diligence, human resources are also important, particularly for tech startups.”
Duong of Indochine Counsel also added that a regulatory sandbox model is reportedly being examined to apply to crypto-enabled businesses in Vietnam.
William Do, CEO of Hobbit Investment, highlighted that some novel investment models have gained traction over the past few months, which in turn unlock vast potential for financiers with a forward-thinking mindset.
“For instance, the use of NFTs during the transactional phases of purchasing and selling physical real estate might be a very lucrative business endeavour for investors. Even though NFTs are relatively new, they have the potential to have an extensive and long-term influence on the value of a piece of land,” Do said. “This is particularly true as we approach a new era in which we will be selling houses that are backed by crypto-based mortgages.”
Dr. Le Xuan Nghia Economist
The bond market saw a great deal of difficulty over the past few months, with the unprecedented cancellation of nine of Tan Hoang Minh’s private bond sales raising a ruckus in the domestic economy. During the first half of 2022, we have sought to persuade policymakers to swiftly rectify and revitalise the corporate bond market to meet investors’ pressing requirements for capital raising.
Bonds issued by corporations are of the utmost significance to the capital market in general as well as the real estate market specifically.
Because the risk posed by the bond market is now the primary driver of Vietnam’s macroeconomy, I believe that if the bond market recovers, the stock sector will also rebound in the same manner.
Nguyen Thi Hang Nga, Deputy general director Vietcombank Fund Management Company
Our investment principle is rather simple: holding on to solid firms that have fair value. Despite the unfavourable market, our fund’s assets still increased. We are managing four open-ended funds. In particular, the return of the bond fund grew by 3.6 per cent within the first six months.
The other two funds focusing on investing in large-cap stocks also achieved positive results after six months. Our advice for investors: we should examine our asset allocation, including the number of bonds, equities, and deposits.
Investing through a fund management vehicle could not help us to expand our profit by five to seven times, but does not allow our portfolio’s value to fall by 70-80 per cent.
Le Van Duong, Partner Indochine Counsel
Due to the impossibility of establishing a legal organisation in Vietnam for certain types of commercial purposes, Vietnamese businesspeople fund a significant amount overseas. Meanwhile, there are certain barriers to getting a licence for overseas investment. Despite the large scale, the collection of taxes from major players in the field is almost nonexistent. Vietnam is working on several drafts that allow technology investors to create legal corporations and obtain funds.
Another challenge confronting individual funders is a lack of skills and experience. They need to have detailed investing strategies while acquiring more skills. Otherwise, they may outsource to professional financial and tech consultancy units.
Currently, app-based investments in Vietnam lack clear transaction evidence. Prior to finalising their decisions, they need to examine the company’s financial standing, licensing, and capabilities. In tech, product valuation is necessary.
Trinh Ngoc Duc, Chairman D.lion Media and Solutions Group
I believe that products applied to blockchain technology from Vietnam can compete with international products.
However, these new products, for example, blockchain games, face difficulties in attracting investment capital due to legal barriers. At present, the legal framework for the blockchain industry has yet to be clear, the existing strict regulations cannot encourage the development of this new investment model. Many enterprises have to establish a legal entity overseas, which is a pity.
For investors and partners to receive a compromise, I think they should pay attention to some notes. As a business which is calling for capital, volume is not the most important factor. We prefer to look for savvy investors who can support our business in building business strategies and accompany us during the operation process.