Stock market in for buoyant new year

Global volatilities highlight the Vietnamese stock markets resilience, Photo: Dung Minh

After a turbulent year that saw both record highs and lows, the Vietnamese stock market is expected to regain its footing in 2019. Most analysts believed that the VN-Index will bounce back from the doom and gloom of 2018, reaching as high as 1,049 points by December this year. This is equivalent to an 18 per cent increase, but still lower than the 1,200 peak in last April.

Amid growing tensions around the world, especially the ongoing US-China trade war, it seems that investors will find refuge in Vietnam’s stable macroeconomic performance and strong domestic consumption. In 2019, the stock market is likely to welcome a new Securities Law that promises to relax the foreign ownership cap that used to drive major funds away from Vietnam’s listed companies.

In this amended version, as a general rule, foreign investors are allowed to own 100 per cent of stakes at a Vietnamese company operating in a non-critical sector. Shareholders at each company will decide the amount of foreign-owned stakes that they are comfortable with.

This is an update from the current law, which automatically sets the limit at 49 per cent for listed companies. Some conditional industries, such as banking or aviation, have an even stricter cap at only 30 per cent. The new law is expected to take effect by the end of 2019, if its content is passed by the National Assembly.

PXP Asset Management is upbeat about this law, believing that it will improve market access to foreign investors, and show the world that Vietnam is determined to join the MSCI Emerging Markets Index.

“Core elements are in place for a return to the index highs in Vietnam. These include a supporting macroeconomic environment, a reform-minded government, decent earnings growth, and increased market visibility, particularly in foreign interest,” wrote CEO Kevin Snowball in the latest report.

The earnings of Vietnamese businesses grew by 12 per cent in 2018, despite stock market volatilities. The market was also included in the “possible upgrade” watchlist by FTSE Russell, the index provider that is used by international funds with $16 trillion in assets.

Another exciting development for foreign investors is Vietnam’s ongoing sale of state-owned enterprises (SOEs). This segment was pretty muted last year with unsuccessful or delayed transactions, but analysts believed that 2019 will renew investors’ interest in SOE equitisation.

According to Bernard Lapointe, head of research at Viet Dragon Securities, investors will pay the closest attention to industry leaders such as Petrolimex or Airports Corporation of Vietnam, as well as major land owners such as Vietnam Steel or those that offer synergy opportunities like Vinatex.

Lapointe warned that external headwinds, such as geopolitical tensions, can continue to affect the Vietnamese stock market in 2019. The researcher is also upbeat about the earnings growth of listed firms and a stable VND.

Shamoon Tariq, portfolio manager at Scandinavian fund Tundra Fonder, wrote, “Going into 2019, we foresee that a potential US-China trade deal could emerge as the biggest trigger for Vietnam’s stock prices to reflect its fundamentals and robust economy. Corporate earnings are forecast to grow at more than 15 per cent, while valuations are much stretched compared to last year.”

Tariq added that if investors leave out the five biggest Vietnamese stocks in terms of index weighting, the price-per-earnings ratio for Vietnamese stocks drops to only 11.3x. This is significantly lower than other markets in the region and adds to the appeal of the Vietnamese stock market.

In terms of sectors, Vietcombank Securities pointed out that investors will focus on industries benefiting from Vietnam’s domestic consumption growth, such as retail, consumer finance, food and beverage, transportation, and real estate. Moreover, sectors that can take advantage of the US-China trade war, such as seafood or manufacturing, may also receive investors’ attention.