It's up around 23% year to date, making it the best-performing market in Asia-Pacific.
On June 1, Vietnam's major bourse, the Ho Chi Minh City Stock Exchange (HOSE), suspended trading for the first time in its 21-year existence.
What's the reason? A spike in orders, fueled by a rise in individual investors, has pushed the trading value of Vietnamese equities to an all-time high of more than $1 billion. Exchange operators halted trade for fear of the system failing.
The country's benchmark VN-Index, which monitors all businesses listed on the HOSE, has increased by 23 percent since the beginning of 2021, making Vietnam the top-performing Asia-Pacific market this year. Retail investors are driving the rise, accounting for more than 90% of trade volume this year. In 2021, Vietnam will have registered approximately 100,000 new trading accounts each month on average.
"This is an exceptional time," says Hien Tran Thi Khanh, research director at VNDirect Securities, "in terms of the VN-Index increase, the trading volume explosion, and the vigorous engagement of new retail investors."
According to Hoang Viet Phuong, head of research at SSI Securities, market liquidity has also hit fresh highs. By early June, Vietnam had surpassed Thailand as the ASEAN market with the highest daily trade volume. Many observers believe this year's surge has more legs.
Increase in retail investors
However, volatility is a feature of Vietnam's stock market. Last year, during the early stages of the COVID-19 epidemic, a round of panic selling drove the market down to its lowest point in history. By the end of March 2020, the VN-Index had dropped by 25% to 696 points, its lowest level since 2017. As the country faced a third wave of illnesses in January of this year, the stock market fell again, this time by 4% to roughly 1,056 points.
Despite a fourth wave of illnesses, the Vietnamese stock exchange remained strong in May. The VN-Index increased 7.15 percent in a month, hitting 1,320 points, the highest rise of any Asia-Pacific market. Tran attributes the fourth wave's dismissal to retail investors, who understood that the government had responded quickly and successfully to earlier epidemics.
It helps that Vietnam, Southeast Asia's fourth-largest economy, had positive GDP growth in the first quarter of 2021 and is anticipated to increase by more than 6% for the whole year.
Retail investors in Vietnam have emerged as "a new decisive buying force that has transformed market dynamics," thanks to cheap interest rates and optimism in their country's recovery, according to Phuong.
Retail commerce has already grown in Vietnam, once in 2001 and again in 2007. The stock market was just a year established during the first boom. Foreign investment drove the second boom.
Andreas Vogelsanger, Vietnam CEO at Asia Frontier Capital (AFC), claims that the 2021 boom would be different from previous ones since it will be fueled by domestic investors. Historically, Vietnamese investors have frequently attempted to imitate foreign investor actions in the market. They paid no attention to overseas vendors this year.
Growth of the capital market
Tran expects sustained strong trading volumes in Vietnam, however the exchange may not be able to deal with the level of activity seen in early June until July.
"If everything goes as planned, trade order capacity may grow three to five times—and we won't have a bottleneck problem," Phuong adds.
Analysts predict that corporate earnings will be robust for the remainder of the year and into 2022. Vogelsanger forecasts that earnings for publicly traded firms would increase by 25% to 30% in 2021. According to Phuong, the banking, brokerage, and material sectors would drive development, while export-oriented companies such as textile, garment, and fishery should be profitable.
Even the optimists are preparing themselves for a rough ride. Domestic bull markets, particularly in emerging and frontier economies such as Vietnam, will eventually overreach, says Vogelsanger. "So far, we have witnessed Vietnam's stock market [advance] from undervalued to fair value—but declines are always probable and usual following such big upward rises."
Nguyen Thi Minh of Yuanta Securities cautions that Vietnam's new investors are prone to groupthink and may depart the market with the same zeal with which they entered. Many "do not have in-depth investment expertise," he claims. "All they're doing is following investing trends."
According to Stephen McKeever, managing director and head of the institutional client division at Ho Chi Minh City Securities (HSC), while the market is "technically overbought," any pullbacks would be modest and short-lived given the continued liquidity support.
HSC's VN-Index goal for the year is 1,500 points. The benchmark index might possibly hit 1,500 to 1,600 points, according to AFC.
The HOSE, which debuted in July 2000 with two listed firms, was the country's first stock exchange and marked the start of the country's capital market growth. The bourse presently has a market value of $201 billion.
This year's market activity, 21 years after the HOSE's inception, marks the "next step" of Vietnam's capital market growth, with a greater participation of the local population, according to Phuong.
SOURCES:
https://www.bloomberg.com/news/articles/2021-06-01/vietnam-stocks-set-to-rally-further-despite-virus-resurgence
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