Likely Trend for Long-term Stock Growth

9:26:27 AM | 6/30/2022

According to experts, the stock market will continue to witness transformational changes as the world is gradually shifting to a new trend of globalization weighed by more regionality and stronger protectionism. The world will see the biggest restructuring of capital flow allocation order in decades. At that time, countries with stable political backgrounds and great growth potential like Vietnam will have more opportunities for development.

Most importantly, how will Vietnam seize this opportunity to obtain transformational changes and complete reforms of economic activities? These changes will lead to stock restructuring. And despite many limitations and inadequacies, the long-term stock growth trend is still guaranteed.

Many positive supporting factors

According to the research of Top 50 Prestigious and Effective Public Companies in 2022 (VIX50) conducted and announced recently by Vietnam Report Joint Stock Company, the Vietnamese economy is gradually gaining positive recovery momentum amid rising inflation and tighter monetary policy in many countries around the world and ongoing Russia-Ukraine tensions. World market fluctuations are also an opportunity for Vietnam to strengthen its internal force and attract investment in the new post-COVID 19 globalization trend. As an important fundraising channel for the Government and businesses and an attractive investment channel for investors, Vietnam's stock market is currently the cup of tea of the community. A series of solutions for market inspection and stabilization launched by the Ministry of Finance and the State Securities Commission (SSC) are positively appreciated by investors for their effective clearance of many bottlenecks, a move described to help enhance the sustainability of Vietnam's stock market.

2021 witnessed the spectacular growth of the Vietnamese stock market when the VN-Index set a record high of over 1,500 points and climbed 35.7% in the year, outperforming the average growth of 15.2% in five nearest years. Besides all-time high index scores, the stock market also recorded many positive changes in quality, featured by liquidity boom, market capitalization and investor optimism. The unpredictable development of the COVID-19 pandemic that caused serious consequences has become a strong catalyst to direct idle cash flow into the equity market and prolong growth momentum which has been shaped since 2020.

In 2022, facing many complicated developments at home and abroad, VN-Index slumped deeply in the first six months of the year. From the peak of more than 1,500 points in January, the gauge sank to below 1,200 points before making a fairly strong recovery in the last two weeks of May and early June. The market turned cautious on growth prospects. Only about 31% of experts and publicly traded enterprises in a survey conducted by Vietnam Report in May 2022 thought that the market would continue to be vibrant and look up. Meanwhile, most believed that it would be volatile with new shocks or quiet movements, and moderate liquidity. Thus, the VN-Index is likely to grow below 10% by the end of 2022.

Although it is experiencing a correction amid cautious investor sentiment, the Vietnamese stock market is believed to have positive support from fundamental macroeconomic factors and other internal factors.

In particular, Vietnam’s economic recovery prospects are very clear and positive. Vietnam rises 30 places in the COVID-19 recovery rankings launched by Nikkei Asia. Vietnam is also the only country to be positively assessed by three top credit rating agencies Fitch Ratings, Moody's and S&P amid inflation and tighter monetary policy in many countries around the world and Russia-Ukraine ongoing tensions. Vietnam has the advantage of enticing manufacturing investment as it is an economic bridge between two densely populated and dynamic regions, China and Southeast Asia, along with a series of free trade agreements signed over the years. According to Dragon Capital, if this advantage can be maintained, steady annual GDP growth of 6.5-7% is a positive scenario in the next few years. In addition, abundant foreign exchange reserves (US$110 billion) will help the State Bank of Vietnam (SBV) with much room to continue exchange rate stabilization policy in the context of likely rising global inflation. These are all decisive factors to draw FDI inflows in a volatile global economy.

The rebound in corporate profits on domestic and international demand recovery is a key driver of Vietnam's stock market. According to Bloomberg, the EPS growth of the VN-Index in 2022 is forecast to rise 25% over 2021. Yuanta Vietnam estimated the EPS growth at 21%. Thus, listed companies may regain growth momentum in 2022 from a low growth base in 2021.

In particular, the Government's efforts to enhance market transparency and upgrade the market status in 2024-2025 are being focused on. In late 2021 and early 2022, the Government issued many directives on strengthening the administration, supervision, inspection and examination of the stock market and the corporate bond market and tuned up the bond market. Such measures as required disclosure of proprietary trading data by securities companies, warning status imposed on stocks that go up or go down too sharply, and a new approach to calculate the final settlement price at maturity of VN30 futures contracts are expected to support the market to increase liquidity and enhance information transparency. Practical market measures are considered to solve many bottlenecks and facilitate the sustainability of Vietnam's stock market.

Market upgrade

One of the prioritized goals of Vietnam's stock market is to upgrade its status in the near future. Market upgrading means raising quality to meet given criteria. This new status will draw a large amount of foreign capital to help Vietnam's securities develop quickly, transparently and sustainably. Criteria for upgrading from a frontier market to an emerging market focus on two main factors: Market size and liquidity (quantitative) and market accessibility (qualitative). Vietnam's main matter is qualitative standards. The Government's recent market action measures are also part of an effort to access qualitative standards. In addition, it is necessary to speed up the testing process and soon complete and run the KRX information technology system to help launch new products and services for the stock market in the near future.

According to Bloomberg data, Vietnam’s stock market is currently a rare Asian market where foreign investors have been net buyers since the beginning of the year. This has partly reinforced the view that Vietnam's stock market will soon pass through the current volatile period and enter a more stable recovering and growing period in the coming time. According to experts, from now until the end of the year, the cash flow will be channeled more into production than risk-exposed fields like real estate and equity.

According to a survey by Vietnam Report, 92% of experts and businesses think that the retail industry has a much better prospect. The retail industry is benefiting from the economic recovery but is exposed to risks as rising inflation will force consumers to tighten their spending. Most experts and public enterprises agree that global rising inflation and escalating commodity prices will make 2022 less favorable for material-intensive manufacturing industries but this is not a big story to change the underlying value of the business.

By Quynh Anh, Vietnam Business Forum