Strong GDP Growth, Yet VN-Index Struggles

Despite Vietnam's impressive GDP growth of nearly 7% in 2024, the VN-Index remains stagnant at 1,200-1,300 points, showing no significant breakthroughs. This raises a question: Why does the stock market, often seen as the barometer of economic health, lack momentum despite strong economic performance?

Pressures facing stock market

Reflecting on Vietnam’s stock market in 2024, Mr. Vu Huu Dien, Chairman and CEO of VPBank Securities (VPBankS), described it as a year of significant volatility.

First, foreign investors recorded net sales of over US$3.1 billion since the beginning of the year - the highest figure in the 24-year history of Vietnam’s stock market, raising serious concerns.

Second, the VN-Index, the market’s largest representative, failed to break through key levels. Throughout the year, it remained stuck in a narrow range of 1,200 to 1,300 points, creating challenges for investors. Notably, the VN-Index first reached 1,200 points in 2007 before plunging due to the global financial crisis. By late 2021, it surpassed 1,500 points for the first time, fueled by a post-COVID investment frenzy. However, this excitement was short-lived, as the market nosedived a year later amid widespread sell-offs.

Third, in 2024, Vietnam’s stock market faced intense competition from alternative investment channels. Gold prices rose nearly 20% year-to-date, emerging as one of 2023’s top-performing assets. Bitcoin surpassed the US$100,000 mark, marking a significant milestone for the cryptocurrency market. Meanwhile, the strengthening US dollar following the U.S. presidential election put pressure on exchange rates, diverting investor capital and diminishing the stock market’s appeal.

Fourth, geopolitical and trade conflicts have significantly impacted Vietnam’s stock market. The re-election of Donald Trump as U.S. President has heightened fears of a potential "Trade War 2.0" between the U.S. and China, negatively affecting the global economy and Vietnam’s financial markets.

Fifth, the stock market’s failure to secure an upgrade from frontier to emerging market status continues to limit its ability to attract foreign capital. The KRX system, a project signed between HoSE and the Korea Exchange in 2012, was expected to modernize settlement clearing and transaction management. However, over 12 years later, it remains unfinished. The final testing phase in March 2024, originally scheduled for deployment in May 2024, was postponed again. This persistent delay has eroded investor confidence and raised concerns about the system's reliability, creating a major obstacle to Vietnam’s market upgrade.

Sixth, the most critical issue is the lack of new financial products and high-quality supply, making it difficult for the market to achieve sustainable growth. Furthermore, with individual investors accounting for over 80% of trading value on HoSE, the market is highly susceptible to herd mentality, leading to significant volatility.

Mr. Nguyen Hoang Giang, Chairman of DNSE Securities, highlighted that financial and real estate stocks make up more than 57% of the market capitalization, creating imbalance and over-reliance on cyclical sectors. In contrast, markets like the U.S. benefit from diversification, with a strong presence of technology stocks driving stable growth. The absence of FDI companies and high-tech industries on Vietnam’s stock market reduces its appeal to investors.

Additionally, the decline of major companies such as Hoang Anh Gia Lai, FLC and Novaland underscores the uneven quality of listed firms, negatively impacting overall market performance.

How can capital flow be revived?

Between 2017 and 2019, foreign investors were net buyers in Vietnam’s stock market, peaking at over US$2 billion in 2017. However, since 2020, this trend has reversed, with net foreign outflows totaling approximately US$6 billion over the past 3-4 years.

A senior executive at a Ho Chi Minh City-based securities firm noted that recent market "waves" have largely been speculative, driven by record-low deposit interest rates and the U.S. Federal Reserve's monetary easing policies. However, these factors have already been priced into the market, leaving a need for new growth drivers.

In recent years, Vietnam’s state-owned enterprise (SOE) privatization process has slowed significantly, with very few private companies newly listed on the market. Major SOEs such as Agribank, MobiFone, the Vietnam National Coal and Mineral Industries Group, and VNPT were expected to undergo privatization by 2020, yet progress remains sluggish.

To address current challenges, Vietnam needs to accelerate the privatization of SOEs, encourage private companies to list, and enhance corporate governance and information transparency. Additionally, businesses listed on the UPCoM exchange should be incentivized to transition to main listing boards, with higher listing standards implemented to improve governance and transparency.

Fiingroup reported that banking, securities and real estate stocks are the most traded due to high liquidity and short-term volatility. However, Mr. Bui Van Huy warned that the banking sector may face pressure after Circular 02 expires, potentially leading to lower profits and higher non-performing loans in Q4 2024 and 2025. Meanwhile, the real estate sector shows no signs of recovery, making a breakthrough unlikely.

Individual investors currently account for 80% of trading volume on Vietnam’s stock market, making it highly susceptible to herd mentality. To mitigate this, greater institutional investor participation is needed, along with the development of new financial instruments. At present, the market only offers VN30 futures contracts, with tools like short selling still unavailable.

On market upgrade prospects, Vietnam has met seven out of nine criteria for reclassification from frontier to emerging market status. However, delays in addressing issues such as the removal of the pre-trade margin requirement (non-prefunding), failed trade management, and the operationalization of the KRX clearing system persist. At the current pace, Vietnam’s stock market may not achieve an upgrade until at least September 2025.

By Huong Ly, Vietnam Business Forum