For the first time in its 21-year history, Vietnam’s main bourse—the Ho Chi Minh City Stock Exchange (HOSE)—halted trading for a whole session on June 1.
The reason? A surge of orders, propelled by a boom in retail investors, had catapulted Vietnamese stocks’ trading value to an all-time high of over $1 billion. Exchange operators suspended trading for fear the system would crash.
The country’s benchmark VN-Index—which tracks all companies listed on the HOSE—has gained 23% since the beginning of 2021, making Vietnam this year’s top-performing Asia-Pacific market. Driving the rally: retail investors, who have accounted for over 90% of trading volume this year. On average, Vietnam has registered nearly 100,000 new trading accounts every month in 2021.
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“This is an unprecedented moment [in terms of] the VN-Index rise, the trading volume boom, and the robust participation of new retail investors,” says Hien Tran Thi Khanh, research director at VNDirect Securities.
Market liquidity has also reached new highs, says Hoang Viet Phuong, head of research at SSI Securities. By early June, Vietnam ranked second among ASEAN markets, after Thailand, in terms of daily trading volume. And many analysts say this year’s rally has further room to run.
Rise of retail investors
But volatility is a hallmark of Vietnam’s equity market. Last year, in the early stages of the COVID-19 pandemic, a fit of panic selling sent the market tumbling into its steepest-ever decline. The VN-Index plunged 25% to 696 points by the end of March 2020, its lowest level since 2017. In January this year, as the country experienced a third wave of infections, the stock market contracted again—this time by 4% to around 1,056 points.
But in May, Vietnam’s bourse remained buoyant despite a fourth wave of infections. The VN-Index shot up 7.15% for the month, reaching 1,320 points, posting the biggest gain of any Asia-Pacific market. Tran credits retail investors, who shrugged off the fourth wave because they recognized the country had responded swiftly and successfully to previous outbreaks.
It helps too that Vietnam, Southeast Asia’s fourth-largest economy, recorded positive GDP growth in the first quarter of 2021 and is expected to expand by more than 6% for the full year.
Retail investors in Vietnam, emboldened by low interest rates and confidence in their country’s recovery have emerged as “a new decisive buying force that has changed market dynamics,” says Phuong.
Retail trading has boomed twice before in Vietnam—once in 2001 and then again in 2007. In the first boom, the stock market was barely a year old. The second boom was fueled by foreign investment.
Andreas Vogelsanger, Vietnam CEO at Asia Frontier Capital (AFC), argues that the 2021 boom differs from those in the past because it’s driven by domestic investors. Historically, Vietnamese investors often tried to mimic foreign investor moves in the market. This year they paid no heed to foreign sellers.
Capital market development
Tran predicts continued high trading volumes in Vietnam—though it may take the exchange until July to be able to cope with the level of activity it experienced in early June.
“If all goes [according to] schedule, trading order capacity could increase three to five times—and we [won’t] have a bottleneck situation anymore,” says Phuong.
Analysts also expect strong corporate earnings for the rest of this year and into 2022. Vogelsanger predicts listed companies’ earnings will grow around 25% to 30% for 2021. Phuong notes that the banking, brokerage, and material sectors will lead growth, while export-oriented firms like textile, garment, and fisheries should solidly be in the black.
But even the optimists are bracing for a wild ride. Domestic-driven bull markets, particularly in emerging and frontier markets like Vietnam, inevitably overshoot, warns Vogelsanger. “So far, we have seen Vietnam’s stock market [go] from undervalued to fair value—but corrections are always possible and normal after such strong upward moves.”
Nguyen Thi Minh of Yuanta Securities warns that Vietnam’s new investors are prone to groupthink and may rush to exit the market as eagerly as they piled in. Many “don’t have thorough investing knowledge,” he says. “They’re just following investment trends.”
Stephen McKeever, managing director and head of the institutional client division at Ho Chi Minh City Securities (HSC), says that while the market looks “technically overbought”—any pullbacks are likely to be shallow and short-lived given the ongoing liquidity support.
HSC has a year-end VN-Index target of 1,500 points. AFC also predicts the benchmark index could reach 1,500 to 1,600 points.
The HOSE, launched in July 2000 with two listed companies, was the country’s first stock exchange and the beginning of its capital market development. The bourse has now grown to a $201 billion market capitalization.
This year’s market activity, 21 years after the launch of the HOSE, represents the “next stage” of Vietnam’s capital market development, with more of the local populace participating, says Phuong.
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