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Vietnam
With a resilient economy, political stability, and an expanding middle class, Vietnam’s stock market has become more appealing.
Over the past year*, the Vietnam Ho Chi Minh Stock Index (VN Index) has surged by 10.78%. This growth stands in stark contrast to the trends seen in other regional indices. Indonesia’s Jakarta Composite Index faced a 3.64% decline, while Malaysia’s FTSE Malaysia KLCI index demonstrated a 1.21% increase during the same timeframe. Thailand’s SET index even recorded a 13.26% drop and China’s SSE Composite Index displayed a 0.83% decrease. Only India’s Nifty 50 came closer to Vietnam, experiencing a 6.61% ascent in the last 12 months.
“When compared with its frontier and emerging market peers, Vietnam’s stock market has delivered strong, long-term, relative risk/returns against other emerging and frontier market equities, as well as global equities more broadly,” writes Miko Huang, Manager, Equity Index Product Management at the London Stock Exchange Group.
Additionally, data from Bloomberg** shows since December 2013, the total market capitalisation of Vietnam’s stock market has skyrocketed. It has increased more than five times in USD terms, nearly doubling as a percentage of the nation’s GDP. The market has also diversified substantially, with the top 5 stocks now accounting for just 28.3% of the VN Index, a remarkable drop from 52.9% a decade ago.
Moreover, the financial data platform FiinPro demonstrates that the earnings of Vietnam stocks have maintained a consistent growth pattern, boasting a compounded average growth rate of 16.2% per annum over the period spanning from 2013 to 2022.
Stable economic growth, burgeoning middle class aiding Vietnam’s stock market
Market analysts attribute the stellar performance of Vietnam’s stock market primarily to the country’s robust economic growth. According to the World Bank, between 2012 and 2022, Vietnam sustained an average annual economic growth rate of 6%. During this time, Vietnam’s exports grew four times faster than the global rate.
Separately, as per government data, the country witnessed a record-high FDI of $22.4 bn in 2022. In the first nine months of this year, Vietnam has already received a total of $20.21 bn in FDI inflows.
Notably, major corporations like Samsung, Google, Microsoft, and Apple have chosen to diversify their supply chains by relocating portions of their operations to Vietnam. This strategic shift, often referred to as the “China plus one” approach, has bolstered the country’s economic prospects.
Thus, robust economic growth and an increase in job opportunities have contributed to the emergence of a rapidly expanding middle class within the country. At present, the OECD states that Vietnam’s middle class accounts for 13% of the population, equivalent to 97 million people. These figures are projected to double by 2025. Furthermore, Vietnam’s income per capita is forecasted to reach $7,500 by 2030.
“Middle-income households are expected to make up almost 30% of Vietnam’s population by 2026. Investing in the Vietnam equity market is one of the ways to tap into the sectors that benefit from Vietnam’s growing middle class,” says Ngo The Trieu, CEO and Head of Investments at Eastspring Investments Vietnam.
“Vietnam’s rapidly expanding middle-class should drive the penetration rate of retail banking products and services…It will also drive consumption growth, with total retail sales value expected to increase at a CAGR of 6.4% from 2021 to 2027, reaching $167 bn,” he adds.
The asset manager also emphasises the potential prospects within the real estate sector, given that urbanisation and population growth in Vietnam are projected to fuel the need for residential real estate in the foreseeable future.
Other asset managers support a positive outlook for Vietnam’s stocks. “The P/S ratio (price to sales) clearly indicates that the stock market is relatively undervalued compared to the levels seen at the beginning of 2022. There is obvious potential for the market to rerate its valuation ratios in the next 12 months,” says PYN Elite Fund.
“We anticipate the valuation of the Vietnamese stock market to rise from a P/S ratio of 1.3 to over 2.0 as the disruptions to the financial system are fading away, business outlook improves by more favourable economic conditions, and earnings growth accelerates,” it adds.
Government reforms to boost Vietnam’s stock market
Vietnam’s stock market currently bears the label of a frontier market, a classification assigned by both the MSCI and FTSE indices. This tag has cast a shadow over the market, deterring potential investors, including funds and individual investors.
However, the government is planning to relax stock market settlement procedures for foreign investors. Under this initiative, Vietnam is set to permit brokers to endorse foreign investors as they make stock purchases, a change that the FTSE index provider views as a step in the right direction.
This move carries the potential to dismantle a regulatory obstacle that has thwarted the long-awaited upgrade of the Ho Chi Minh City Stock Exchange (HoSE). All in all, Vietnam expects to be upgraded to the ’emerging market’ status by 2025.
The Vietnamese government is also on the fast track to deploy a trading system developed by the Korea Exchange (KRX) by the end of this year. This endeavour aims to upgrade the technology system and infrastructure of the HoSE to streamline market operations, introduce new financial products, and ensure the continuous and effective functioning of the stock market.
The deployment of the new trading system is expected to further lay the path for upgrading the market from frontier to emerging.
*As of November 8, 2023.
**As of September 15, 2023.
