Economic status ensures open investment channels

Tran Thi Khanh Hien, director of Research Division MB Securities

I’m optimistic about the stock market in the second half of the year, stemming from the following positive signals.

Firstly, we are approaching the time when the Fed cuts interest rates. Additionally, our economy is recovering, and particularly, the recovery of listed companies – the best representatives of the current economy – will also reflect in their profits. We estimate that in 2024, listed companies will record a growth of about 20 per cent in profits and around 15 per cent in 2025.

The final factor is that although we all believe that interest rates are rising, the extent of the increase from now until the end of the year will certainly not be too significant. If interest rates rise by 50-70 basis points from now until the end of the year, it will still be lower than before 2020. This means that while other investment channels have not yet experienced strong recovery, the stock market remains a choice for many individual investors.

These factors will sustain the Index’s upward momentum to 1,350. However, investors should also be aware of three risks: inflation, exchange rates, and the withdrawal of capital from the Vietnamese stock market by investors.

Since the beginning of the year, foreign investors have withdrawn about $1.6-1.7 billion. Besides the weakening of our exchange rate and the fact that Fed interest rates are still higher, this also stems from the fact that our market lacks many commodities to attract investors.

In the past 2-3 years, foreign investors have tended to invest heavily in semiconductors and technology stocks, which our market mostly lacks, and this issue may not be resolved in the near future. Therefore, the withdrawal of foreign investors will be a burden on the market.

Even though people have high expectations for recovery, I focus on valuation factors. Many sectors with growth rates of 2-3 times compared to the previous year are already reflected in stock prices, as everyone knows, and valuations are already high. Therefore, I do not think these are attractive investment opportunities.

Instead, there are opportunities in fundamental stocks with a growth rate of about 20 per cent. From now until the end of the year, I believe large-cap stocks and leading stocks with stable growth will be good accumulation investment opportunities during this period.

Hoang Xuan Trung, dead of Corporate Clients Capital Markets Division Citibank Vietnam

Surprisingly, GDP growth hit 6.93 per cent in Q2/2024, up from 5.7 per cent in Q1. Citibank’s Global Subsidiary Office attributes this primarily to manufacturing and services, as well as improved domestic demand and spending. The impressive Q2 growth is partly due to a low base in Q2/2023, which was affected by weather events like El Niño causing power shortages globally.

Vietnam’s inflation rate rose from 1.8 per cent in 2021 to approximately 3 per cent in 2022 and 2023. However, the first half of 2024 saw a spike to 4.03 per cent, with Citibank projecting a 3.4 per cent rate for the entire year. These figures offer significant insights into the central bank’s future policy direction.

The recent increases in both GDP and inflation are expected to alleviate pressure on the State Bank of Vietnam (SBV) regarding capital injection and maintaining low costs to stimulate economic growth. The results achieved in the first half of the year have created conditions for the SBV to refocus on its initial objectives of controlling exchange rates and curbing inflation.

When the US-China trade war began, everyone observed the supply chain transformation, with Vietnam benefiting. Subsequently, the Russia-Ukraine conflict, while unfortunate for the world, has brought advantages to Vietnam. Many US customers who previously ordered accessories from Taiwan have shared that they still sign contracts but request factories to be set up outside mainland China and Taiwan. Taiwan has invested in Vietnam in many locations such as Bac Ninh, Bac Giang, and Nghe An, amounting to billions of US dollars, as has South Korea.

Currently, there is much discussion about how the minimum 15 per cent tax rate might diminish Vietnam’s attractiveness due to its previously low tax rates, potentially affecting overseas funding inflows. However, statistics from Japanese enterprises indicate that taxes are not among the top five reasons influencing decisions.

Regarding exchange rates, the SBV’s website shows an $8.03 billion discrepancy in Vietnam’s Q1 international trade balance, indicating unaccounted capital flows. This suggests illegal capital transactions. The SBV recognised this issue a year ago and has since deployed significant resources to address it. In late 2022, it amended regulations on one-way overseas money transfers.

Concerning gold and foreign currency, the SBV has sold about $6.5 billion since the beginning of the year, a stark contrast to its previous strategy of term-based sales for market stabilisation. Additionally, through commercial banks and gold companies, it has released about five tonnes of gold (approximately $420 million) to narrow the gap between domestic and international gold prices, deterring illegal transactions. The SBV also plans to investigate cryptocurrency transactions.

Citibank forecasts Vietnam’s economic growth to adjust upward to 6-6.4 per cent, aligning with desired management scenarios. Inflation and price growth are predicted at 3.4 per cent, with the SBV maintaining its current management policies. The exchange rate is expected to hover around 25,300 VND/USD by year-end and reach 26,000 VND/USD by the end of next year.

Regarding interest rates, to counter low VND rates, the SBV has maintained rates by pushing VND into the OMO channel (4.5 per cent) to narrow the gap with the US Fed’s 5.25 per cent rate. With this direction, Citibank believes the SBV will not reduce its operating interest rate and will maintain current VND rates.

Meanwhile, many businesses in Vietnam are benefiting from favourable USD lending rates, with short-term loans at about 3 per cent, lower than the Fed rate. This reflects banks’ efforts to fill their SBV-allocated credit quotas. Consequently, regardless of the Fed’s future rate reduction roadmap, USD interest rates in Vietnam are unlikely to decrease further.

Tran Tuan Tai, investment director SonKim Retail

Regarding future investment channels, especially for small investors, the first choice remains stocks, as reduced exchange rate pressures could prompt a return of investment funds. Additionally, the upgrade of Vietnam’s stock market is expected to attract global investors, stimulating growth.

The second channel is corporate bonds. The corporate bond market has shown signs of recovery following the resolution of the Tan Hoang Minh bond issue and support efforts. Public confidence is gradually improving, with banks, financial institutions, and individual investors considering a return to the bond market.

The mid-range real estate segment has garnered the most attention and is evaluated based on fundamental business platforms. For real estate investors, this is an opportunity to assess and pursue merger and acquisition deals.

In retail real estate, there is also a promising opportunity due to the high number of lease returns currently available. According to SonKim Retail’s assessment, to maximise the value of retail real estate, a company must own more than 350 new stores to leverage negotiating discounts with manufacturers. Such scale will also help reduce logistics costs, thereby achieving good profitability.

When choosing investments, if they are not investing in real estate, individual investors often consider investing in real estate stocks. Beyond real estate stocks, attention should be given to sectors rebounding from lows, such as basa fish, shrimp, and textiles.

On a deeper analysis, opportunities are consistently identified for investors, financial institutions, and individual investors.

The rise of individual investors is a notable trend in Vietnam. Prior to 2020, the emphasis was often on developing institutional investors. However, in the 2020-2021 period, there was an interesting surprise where even in developed markets like the US, there was a resurgence of individual investors and emerging trends such as speculating in stocks of companies nearing bankruptcy.

In Vietnam, during the shareholder meeting season of 2023-2024, several securities firms acknowledged the growing importance of individual investors, noting it would be regrettable to overlook this investment source. Consequently, individual investors are becoming more professional, knowledgeable, accumulating more capital, and utilising more tools for investment.

The US Fed is closely monitoring market developments to inform its decisions. Experts predicted that if the inflation index remains below 2 per cent, it may reduce interest rates. Of greater concern is the employment index, with new job creation declining by over half, unemployment rising above 4 per cent, and wage growth decelerating, posing significant challenges for the US economy. Consequently, experts expect the Fed to soon lower rates.

Nguyen Minh Tuan, CEO and co-founder, Vietnam Financial Advisory Community

As of June, when talking about GDP, we were unsure if we would achieve such good numbers, especially without information on the direct impact of the salary increase and the unclear international issues.

When discussing investment opportunities for individual investors in the second half of the year, I believe we should consider terms of portfolio strategy. From my perspective, there are several breakthrough points.

Firstly, regarding stocks, we are facing a significant opportunity as the signal for an interest rate cut from the Fed has a higher probability of occurring in September. In my view, over the past two months, given such opportunities, I have increased the proportion of stocks in my portfolio. Previously, in the most growth-oriented portfolios, I would allocate about 55 per cent, but now the proportion has increased to 60-65 per cent.

As for accounts and liquidity, such as deposits or bonds, these have also been increased due to rising market interest rates. Gold, however, has either decreased or remained the same as it is a strategic asset during these volatile times. However, due to interventions by the central bank, we have calculated to reduce the proportion of all investors in two types of gold: gold rings and SJC gold.