VIETNAM STOCK MARKET IN 2018 
The Vietnam Stock Market’s investor base has not changed much in 2018, as institutional investors just comprised 16% of daily market trading in 2018. The market therefore is influenced by the whims and sentiment of local retailed investors, whose behavior could be extreme in a year with a penchant for trading amidst high degrees of volatility. It seems to retail investors that the rally was over when the currency became more vulnerable with a sudden trade war risk and the fact that interest rates already having bottomed out in Q2 further compounded the vulnerability issue of the currency.

As local investors follow closely both the VND and the interest rate, it is worth zooming out to regional comparisons to better understand the real performance of the local currency for the year. VND outperformed regional peers in 2018, with only a ~2.4% depreciation thanks to higher-than-expected current account surplus and a tightened monetary policy.  On the other hand, interest rates increased faster than our expectation, at 70-100 bps for lending rates and 50-70 bps for deposit rates by the end of 2018.  Rising interest rates have molded investors’ perspective to be more prudent in making investments in both the stock market and property market, and a risk-off mindset has dominated local investor sentiment. It’s a wide contrast from when the market P/E was 15-16x, and when the 1-year deposit rate was 6.5% one year ago. Nowadays, market P/E has reduced to 12-13x, as 1-year deposit rates has increased to 8% (please refer to our current P/E chart for Vietnam market below). The average dividend yield of Vietnam stocks has been reduced from 6.8% in 2015 to 4.1% in 2018 and 3.6% in 2019.  It also effected a shift in which more individually-held assets pivoted from stocks to corporate bonds, some of which are offered at rates 200 bps higher than 1-year bank deposits. 

 

While retail investors comprise the main driver of the market at current, they are also keen to watch closely what foreign institutional investors do. This is because foreign institutional investors end up having to buy the stock at a higher price than domestic investors are able to, hemmed in by Foreign Ownership Limits and two-tiered pricing for domestic vs. foreign investors. Investibility has been the key issue for foreign investors to further engage with the Vietnam market for a very long time. It is not only an obstacle for foreign investors, but it is also a key hurdle to address in order for the country to upgrade to emerging market status.

 

Initial public offering (IPO) activities of both SOEs and private enterprises were strong, making Vietnam the largest IPO market in Southeast Asia in 2018. However, the situation was getting worse quickly in the second half of the year, when the IPO/ divestment of SOEs slowed down. In addition, investors became more pessimistic when the participation in IPO, even for the State or private sector, led to big losses in this period.