Market declines but bright prospect on horizon
Despite short-term declines, the outlook for the stock market is bright in the long term as the Vietnamese economy is growing at a faster pace than many countries, according to experts.
Recently, waves of mass selling have triggered price slumps and investor withdrawals on the stock market. The benchmark VN-Index, at some point, fell below 1,000 points, causing concerns over the economic prospects.
Ngoc Huong, an office clerk in HCM City, said she was making big money from stock trading in 2021 as the market was on the rise at the time. Now, everything is different as the market has followed a downward trend.
"I've deleted my stock-trading application because 30 per cent of the money on my account has gone. It's better to wait and see now," said Huong.
Huong is not the only F0 investor to feel the pinch of the market downturn. In fact, most F0 investors in the market have found themselves in the same situation. Some are staying idle to wait for market recovery, and others have left the market for good.
It is worth noting that F0 investors were behind many market booms in the past. Their trading activities once lifted total trading value on HCM Stock Exchange to an all-time high of over US$1 billion daily.
Unfortunately, F0 investors have begun to fall in number recently amid the bearish trend. They opened just 102,244 new accounts in September, down 34 per cent month-by-month.
Nguyen Hoai Thu, director of the Securities and Bonds Investment Division, VinaCapital, was concerned that the situation would be fuelled by recent geopolitical conflicts.
She said the geopolitical conflicts have disrupted global supply chains, causing prices to rise. In the face of such inflationary pressure, central banks have had no other choice but to tighten monetary policy to curb inflation.
"Contractionary stance will work against the stock market because it lifts firms' cost-of-debt, eroding their profits and dragging down their stock prices," said Thu.
Economic expert Dinh The Hien said cash flows were abundant prior to April 2021 as 'wave-makers' actively engaged in stock trading to create market waves. They traded over VND20 trillion of stocks each session during the period.
After the authorities tightened up on the market, wave-makers began to disappear and cash flows fell. High deposit rates fuelled the situation by encouraging investors to put their money into savings.
"The shortages of cheap money dealt a blow to the market because low cash flows hold back stock prices. The market would be bearish in the short term," said Hien.
However, experts are expecting bright prospects on the horizon.
Tran Ngoc Bau, CEO of WiGroup, underlined cash flows as the key to market growth. As such, the shortages of cheap money in 2022 amid mounting interest rates have had an unfavourable impact on the market.
However, the market would turn for the better in years to come as the US Federal Reserve is expected to reduce the frequency of interest hikes in 2023.
"The move would ease the pressure on the State Bank of Vietnam to absorb more money from the economy. That means the recovery of cash flows is in prospect," said Bau.
Director Thu shared this view, saying that the outlook is positive in the long term as the Vietnamese stock market is being undervalued compared to other markets in Southeast Asia.
She supported her remarks by showing that nine-month pretax profits of the 200 largest firms in the market rose by 22 per cent year-on-year. Most listed firms are projected to grow by 19 per cent in profits next year.
Additionally, the Vietnamese economy is riding high with a long-term growth forecast of roughly 7 per cent and with a positive medium-term outlook assigned by international credit-rating agencies.
"Despite unfavourable factors, long-term investors would definitely know that now is the time to hold stocks," said Thu.
Economic expert Can Van Luc and his colleagues from BIDV Research and Training Institute said the market has been caught in a vicious circle of falling liquidity and panic selling.
"For the time being, investors should keep calm and not succumb to panic selling. A decision should not be made on grounds of rumours and bandwagons," said the team.
Bandwagon effect prevails in the market because 80 per cent of investors are individual investors, who, typically, do not make investment decision on grounds of rationality and analysis, but on rumours and herd instinct.