Major market drivers to offer stimulus for stock objectives

November 23, 2021 | 09:00

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Vietnam’s equity market has witnessed a significant bounce in the last few months of the year thanks to the economic V-shaped recovery and the large influx of domestic retail investors. Now, it is hoped that Vietnam will sooner rather than later be elevated to the status of an emerging market.

Major market drivers to offer stimulus for stock objectives

Last week’s seminar brought together movers and shakers from Vietnam’s securities market to discuss the prospects for the years ahead, Photo: Dung Minh

According to Deputy Minister of Finance Nguyen Duc Chi, the Ministry of Finance (MoF) and other relevant ministries are finalising the development roadmap of Vietnam’s stock market until 2030, with a vision of 2045.

The deputy minister stated at last week’s seminar on Vietnam’s stock market potential, hosted by VIR, that the stock market will account for at least 85 per cent of GDP adjusted by 2025 and 110 per cent of GDP by 2030.

A set of equities, corporate bonds, and government bonds should make up for around 47 per cent of GDP in 2025 and 58 per cent of GDP in 2030.

“We intend to expand the domestic derivatives market by 20-30 per cent annually. The number of investors would reach 5 per cent of the population by 2025 and 8 per cent by 2030, with the engagement of local, international, organisational, and individual investors,” he said.

In the next few years, the MoF and the State Securities Commission (SSC) will reorganise the Securities Depository Centre in accordance with the corporate model and synchronise technology for securities trading and payment.

Furthermore, the Vietnam Stock Exchange – the parent company of the Ho Chi Minh City and Hanoi bourses – is held accountable for securities market cooperation between Vietnam and other international peers.

Despite significant economic development, Vietnam has yet to be upgraded to an emerging market classification by the MSCI. The local government’s efforts and aspiration to increase the benchmark for several years, but Vietnam is still classed as a frontier market.

“Thus, a significant goal for us is to persuade international index providers, including FTSE Russell and the MSCI, to upgrade Vietnam’s stock market status to the emerging market category by 2025. Our stock market is set to become one of the four largest, most professional equity markets in ASEAN,” Chi told VIR.

The fresh Law on Securities came into force in January, with high hopes for the central counterparty clearing system, intraday trading, short sales, and non-voting depository receipts to lay a concrete foundation for the market upgrading status.

Regardless, none of these have a definite schedule for implementation as of yet.

Pham Hong Son, vice chairman of the SSC, noted that one of the concerns that every foreign financier has about Vietnam, and one that the MSCI has addressed, is the lack of availability of company-related information in English, such as financial statements or information disclosure, rules, and stock market detail flow.

“The SSC is making efforts to encourage listed companies to disseminate related documents in English, as well as promote international financial standards to enhance businesses’ capacity,” said Son.

Risks and rewards

Domestic retail investors, notably, are the main driver of the buoyant market. Local individuals recorded a purchase value of $133.87 million in October alone, while foreign institutional, local institutional, and foreign individuals have continued to sell.

Local individual investors lead the trading with transaction values accounting for 85.9 per cent, followed by foreign institutional investors at 7.2 per cent.

Last month, foreign investors were net sellers of around $253 million. Of note, the DCVFMVN30 exchange-traded fund (ETF) posted a net inflow of $24.8 million, while Fubon FTSE Vietnam ETF withdrew about $27.5 million. In Asia, offshore investors pivoted to net buying in Indonesia, Malaysia, and Thailand in October, except for South Korea, Taiwan, and India. That said, offshore investors remained net sellers across the region for the year to date, apart from India and Indonesia.

The country’s growing stock market is also projected to profit from next year’s reclassification of early frontier markets as full-fledged emerging markets. If this occurs, it will draw a large influx of world-class foreign investors.

According to Brook Tellwright, a Waverton fund manager based in Thailand, Vietnam is currently one of the most attractive stock markets in Southeast Asia, alongside Indonesia and the Philippines. “We anticipate a significant economic rebound next year, which would boost business profitability and help the stock market continue to thrive,” Tellwright said.

Emily Fletcher, co-manager of the UK-backed Black Rock Frontiers investment trust, concurs. She claims that Vietnam’s explosive economic growth has opened many opportunities for forward-thinking businesses. “This will continue as the country experiences a significant economic acceleration following the removal of pandemic-induced restrictions,” Fletcher added.

Son of the SSC revealed at VIR’s seminar that the commission, under the guidance of the MoF, has established working groups for 10 significant securities companies to examine bonds issuers in violation of rules.

Cases such as non-public corporations that are issued public corporate bonds are also subject to strict scrutiny from the authorities.

“We are ramping up efforts to inspect and examine fraudulent cases and utilise high-tech to anticipate risks. This is a part of our plan to swiftly enhance the competence of supervisory management, which is a prerequisite for the market’s transparency. Market volatility and hazards are unavoidable, but they may be mitigated thanks to tight discipline. This, in turn, instils trust and confidence among local and foreign investors,” Son highlighted.

The stock exchange advisory services or the pre-initial public offering period is also highly essential. Securities firms, according to Son, should be the first barrier to filter transparent candidates. The SSC is considering examining and rating securities companies in Vietnam to raise their responsibility.

Taking a feasible route

Le Trong Minh, editor-in-chief at VIR, emphasised that the Unlisted Public Company Market (UPCoM) is particularly appealing to investors.

“The current UPCoM case reminds me of the early days of the Hanoi Stock Exchange. Given its amazing advancement, we could also believe in UPCoM’s vast potential in the future. UPCoM offers a wide range of qualities, making it appealing in terms of capital scale and industries. There are, actually, many good UPCoM-listed hidden gems,” he said.

Do Ngoc Quynh, acting CEO at VNDIRECT explained, “According to the state’s proposal to develop the domestic economy, capital mobilisation in the next five years would increase by 1.76 times compared to the previous scale, which is a positive sign for public investment-related companies. Buying fund certificates from renowned fund management companies is a feasible option for inexperienced or low-risk investors.”

Also at the seminar, Tran Le Minh, a representative of Dragon Capital said, “The fund management business sector is facing significant prospects and rapid expansion, but it also faces legal dangers because the existing legislative framework is behind the market’s development.”

Mirae Asset Securities noted the market valuation of the last few months of 2021 and the new year 2022 are still attractive. Some of the major market drivers include the greater control over the pandemic, more comfortable headroom for fiscal policy, and expected growth in Q4 for credit, investment, and consumption, paired with low financing costs.

Moreover, savings continue to be diverted into the stock market, as deposit rates remain low. State-owned enterprises’ privatisation will be further boosted in 2022.

Earnings per share is forecasted by Ho Chi Minh City Securities Corporation to grow at around 18 per cent in 2022-2023, possibly over 20 per cent, illustrating the stock market’s potential in the next two years. Notwithstanding, there are risks worth watching, including heightening uncertainties around the reopening, pandemic-led bad debt concerns among financial institutions, and accelerating foreign indirect investment outflows if the US Federal Reserve raises its policy rate.

Additionally, adverse impact stemming from new Chinese policies on global commodity markets and supply chains would also hurt the stock market.

Local investors, according to Ismael Pili, head of research at VinaCapital, are the primary players in the stock market. However, he expected that would change next year when foreign investors resume their investments after 2021’s delays and restrictions.

Nguyen Duy Thinh-Chairman Hanoi Stock Exchange

Vietnam’s stock market has managed strong growth in the past decades, helping reduce the burden on banks and providing an effective capital raising channel for firms. Banks, by essence, provide short-term loans, while firms need medium- and long-term capital sources. The Hanoi Stock Exchange (HNX) now operates diverse markets: one for listed firms and for unlisted public companies (UPCoM) and bond and derivatives markets, of which UPCoM has existed for 12 years with immense potential.

UPCoM’s initial targets have been reached, serving as an efficient capital channel for businesses and appealing to foreign investors. It helped lure in more than VND150 trillion ($6.52 billion) for firms through additional stock issuances, at a scale of VND 1.5 quadrillion ($65.2 billion), equal to 18.3 per cent of Vietnam’s GDP in 2020. In the first 10 months of 2021, the liquidity in UPCoM quadrupled that in 2020 and five times compared to 2019, equal to 15 per cent of total transaction volume on HNX.

Last month, transaction volume on UPCoM reached a record of nearly VND4.5 trillion ($195 million). The initial public offering scheme helps UPCoM attract good stock. The trading band of 15 per cent (compared to 10 per cent at HNX and 7 per cent at the Ho Chi Minh Stock Exchange is also helping UPCoM to charm investors.

Pham Vu Thang Long-Head of Macro Research Ho Chi Minh City Securities Corporation

Vietnam’s GDP would scale up to $370 billion in 2021 following the new calculation method. As many countries like Thailand, the Philippines, and Indonesia have retreated in development due to COVID-19 impacts, Vietnam might surpass several countries in the region in terms of GDP scale.

The stock market’s fundaments are deemed as the thermometer of the economy, reflected on the VNIndex which has expanded 54 per cent since 2020, and the top growth level in Southeast Asia.

Market capitalisation of Vietnam’s stock market remains modest at more than $240 billion, equal to 65 per cent of GDP following the new calculation method, just higher than that of Indonesia which equals about 48 per cent of GDP.

Meanwhile the market cap of other countries average 100 per cent of their GDP. For instance, that of Thailand equals 107 per cent. This means Vietnam’s stock market still has enormous room for further development.

In the long term, per-capita GDP of Vietnam would reach at least $5,500 by 2025, with middle-income class growing from 20 to 25 per cent during the period, meaning about 25 million Vietnamese would see their income doubling the average GDP (around $11,000 per capita per year).

This is fundamental to reaching the target of 8 per cent of the population having a securities account by 2030. The macro fundament is therefore very conductive for stock market development in this country.

Do Ngoc Quynh-CEO, VNDirect Securities

Since 2011, economic restructuring has been strengthened with three pillars of public investment, state-owned enterprises, and the financial market. Of these, the development of the stock market has contributed significantly to the financial market, to be a foundation for the improvement of corporate’s quality, including listed commercial banks.

For supply resources, we used to be dependent on foreign investors, but the local investors are getting strong also. Demand and potential of the stock market are so huge with 100 million people, $2 billion in daily transaction value, individuals making up 80 per cent of total investors, and 1 per cent of the population joining the market.

There are over 20 million individual accounts in banks with VND5 quadrillion ($217.4 billion) of total deposits. If enhancing the quality of the stock market, development will be sustainable and corporates have been growing well recently.

Last year, the total revenues of all securities companies were estimated at about VND24 trillion ($1.04 billion), including VND7 trillion ($304.35 million) in total profit, less than a commercial bank only.

Thus, we hope that the Ministry of Finance and the State Securities Commission would improve the standards and quality of organisations participating in the market to remove securities companies that do not meet the requirements and extend the room for high-performing securities companies to grow and improve capacity.

Le Duc Khanh-Director of Investment VPS Securities

Investment styles and preferences are varied among different investors. Therefore, consultants need to understand which group of investors they belong to in order to establish the appropriate investment strategy.

Some sectors show good prospects from the end of this year to the first quarter of 2022. The first is the industry groups that can benefit from public disbursement, such as energy and materials. In addition, the securities group can attract investors owing to high market liquidity, along with the cyclical stocks with high beta coefficients such as the steel industry.

Other sectors such as energy, oil and gas, nitrogen fertilisers, and seaports should also be considered.

The banking industry, on the other hand, does not receive much attention from investors currently, as the projected price is far higher than the actual price.

Vu Duc Tien-CEO Saigon-Hanoi Securities JSC

Vietnam’s stock market is entering a new phase that is both sustainable and consistent with overall economic development. This outcome stems from the consistency in the management of the government, the Ministry of Finance, and the State Securities Commission, along with the restructuring process to improve the quality of investment products.

The market is moving in the right direction, ensuring both quantity and quality for sustainable growth. With the current market size, scaling up is no longer an option but a must. If successful, it will create an even bigger boost for the stock market.

We strive to assist businesses in raising capital in a transparent manner and become active participants in the market.

Investors should have a firm grasp of business fundamentals prior to making their decisions. Factors to consider include the company’s leader, the operating industry, and the overall market opportunities.

Even this year, some outstanding stock groups still emerged. Apart from the financial sector, the banking sector retains investment potential resulting from the restructuring process and the growth of the domestic economy. Hence, investors should conduct careful consideration before finalising their selection.

Pham Dinh Huy-CIO, Nam Long Investment

It has been 29 years since Nam Long Investment (NLG) listed on the stock market. Capitalisation of the company has grown from $100 million to $1 billion in line with the market scale.

In 2021, Nam Long has conducted two transactions of mobilising capital successfully, including $30.4 million and private placement of 60 million shares. So we hope that in the time to come, along with the restructuring of the stock market, regulations related to the listing and room for foreign investors in such areas as real estate will be amended to make it easier for corporates to mobilise capital, reducing the dependence on the capital in banks.

There are many differences in the views and expectations of individual and organisation investors on corporate evaluation. For example, if a business is holding a clean land area, it is a good loan guarantee for banks, but for individual investors, they consider it as a huge inventory.

The performance, transparency, and sustainable development of a business are the most important for investors to evaluate and make decisions. However, if the rooms for foreign investors are filled up, they cannot mobilise more, so NLG has initiated other ways to mobilise capital for the mid-term and long-term. Recently, NLG successfully raised capital without too much risk of debt, and the stock has attracted more attention in the market.

Tran Le Minh-Deputy general director Dragon Capital VietFund Management

There is an amount of VND443 trillion ($19.3 billion) in the fund management industry, equivalent to 5.6 per cent of GDP (in 2020), which has gotten remarkably larger since 2013 along with the growth of the stock market. However, it is modest in comparison to Thailand (29 per cent of GDP) and Malaysia (31 per cent of GDP).

We are witnessing the changes in the market’s quality, and clearly seeing three major driving forces of the development. The financial driving force comes from the increase of the average GDP per capita, and people are paying more attention to financial stock, bonds, and insurance investments due to the lower saving interest rate. Leading securities companies and the fund management industry have been upgrade their technical driving force and mobilising more capital.

For the long term, we recommend training and improving awareness of investors, because the number of them has increased sharply over the last two years to 3.7 million from 2.5 million. Thus, the fund management industry has an opportunity to develop rapidly, but legal risks must be taken care of.

Le Chi Phuc-CEO, SGI Capital

One of the factors behind Vietnam’s stock market development in recent times is the open-minded and dynamic nature of the Vietnamese people.

That explains why the market, despite not having major scope in general, has transaction value surpassing that of many new emerging markets. For instance, the transaction value of Vietnam’s stock is approaching the level of ASEAN’s leading markets.

The Vietnamese stock market is on steady development with ever-increasing demand for asset management, and a positive change in the mindset of the Vietnamese that the stock market is increasingly becoming a good investment channel besides real estate or the gold market. In the past year, fund management firms have therefore been striving to introduce new products for asset accumulation to serve investors.

We see that with economic growth averaging 7 per cent annually, top businesses in each sector might post double or triple that growth compared to the average level, so investors should pick up tickers of top players in sectors with bright growth prospect in the forthcoming time, such as infrastructure development or those serving urbanisation demand.

In the next three to five years, the market scope should further swell, causing surprises to even most optimistic experts in Vietnam.

By Luu Huong

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