In the first half of the year, the world was the first in the world. Why did foreign investment withdraw from Vietnam stock market?

First half of the year, the world's first rise, why foreign investment withdrew from Vietnam stock marketOn the latest trading day, June 25, 2021, Vietnam’s VN index rose 0.75% to 1390.12, a record high. In the first half of this year, Vietnam’s stock market rose the most in the world. As of June 26, 2021, Vietnam index (Hanoi all index) rose by 56.7%, and Ho Chi Minh index rose by 25.9%. Meanwhile, Vietnam’s stock market opened a new high in May.
Thanks to the bull market in Vietnam, the Vietnam theme fund managed by Hu Chao, a Chinese fund manager, has risen 58.28% since its establishment at the beginning of last year (as of June 26). However, he found that his investment in Vietnam encountered some situations that he had not encountered in other overseas markets.
“From December last year, we were surprised to find that the system of Ho Chi Minh exchange was not prepared for such a large volume of trading in the market.”. Hu Chao said. Before the bull market in 2020, the daily turnover of the Vietnamese stock market at its peak was about US $500 million. By January 2021, the daily turnover has exceeded 1 billion US dollars, and the problem is highlighted. Hu Chao recalled, “after the turnover exceeded 1 billion US dollars, in the morning, you will find that the whole trading system has been extremely stuck. In the afternoon, there is basically no way to pass in the trading instructions.”
On June 1, 2021, the trading system of the Ho Chi Minh stock exchange simply suspended trading for half a day in the afternoon due to excessive trading volume. To this end, Hu Chao’s team strengthened communication with the exchange and securities dealers, visited the Securities Regulatory Commission of Vietnam, and even reflected the problem to the Vietnamese Embassy in China, learning that the exchange will update its trading system before the end of the year.
To some extent, the anxiety of fund managers is a reflection of the characteristics of Vietnam’s securities market: there are both potential opportunities and immature aspects due to its early development.
(source: wind as of June 26, 2021)
In addition, Vietnam’s vn30 index, representing Vietnam’s large cap stocks, rose even higher, rising 40.1% from the end of last year to the end of June 25, 2021. The sample of vn30 index is the largest 30 stocks of Ho Chi Minh exchange, and the index components account for about 80% of the market value of Ho Chi Minh exchange.
The booming stock market has attracted a large number of Vietnamese retail investors. However, contrary to the growth of domestic investors, foreign investors have been in the trend of net selling of stocks. In the first five months of this year, foreign investors sold nearly 31 trillion dong, double the same period last year. What are the opportunities and risks of Vietnam stock market?
1、 Investing in “the next China”
In recent years, the international community has been optimistic about Vietnam frequently. The economist has published several optimistic articles about Vietnam. Its think tank released the Vietnam report in January 2021, believing that Vietnam will be one of the most competitive manufacturing bases in the Asia Pacific region in the next decade. The Vietnamese government is also ambitious. In order to realize the “Vietnamese dream”, the Vietnamese Prime Minister clearly proposed at the 13th National Congress of the Communist Party of China at the beginning of this year that Vietnam should be built into a developed country by 2045.
What excites investors who are optimistic about the Vietnamese market is the story of the next China. They think that Vietnam, which has many similarities with China, is just like China more than a decade ago. Therefore, we can use sun Zhengyi’s “time machine” investment method to take a rearview mirror view of Vietnam and invest in the booming industries.
In the view of Western investors, Vietnam has the typical characteristics of the growth of emerging markets in the last round of Globalization: demographic dividend, accelerated urbanization, expansion of the middle class, high growth of export trade and a large amount of FDI (foreign direct investment).
Data show that Vietnam has about 98 million people, and the median age of the labor force in 2015 was only 30 years old. Moreover, the quality of Vietnam’s labor force is high. According to the data of the General Bureau of statistics of Vietnam in 2019, the literacy rate of the population aged 15-60 in Vietnam accounts for 97.85%.
After 2015, under the influence of global industrial chain transfer, Sino US trade friction escalation and many other reasons, Vietnam has undertaken industrial transfer from China, including Samsung, apple and other brands to expand production in Vietnam. Moreover, Vietnam has actively promoted the establishment of free trade relations with major countries and regions in recent years, and the degree of opening to the outside world is quite high. According to the 2019 FDI restriction index compiled by the organization for economic cooperation and development (OECD), Vietnam’s degree of opening to foreign investment is higher than that of China, and it is second only to Singapore and Myanmar in ASEAN. At present, the countries with the largest total investment in Vietnam are: South Korea, Japan, China (including Hong Kong) and Singapore. In addition, the free trade agreement between Vietnam and the EU will come into effect in 2020, and the EU is expected to become one of the important investors in Vietnam.
After 2017, the investment of Chinese enterprises in Vietnam has increased sharply. In 2019, China (including Hong Kong) will surpass Japan and South Korea and become Vietnam’s largest source of investment with us $12.3 billion of registered capital. Shen Jianguang, chief economist of Jingdong digital technology, believes that many Chinese enterprises entering Vietnam at this stage moved to Vietnam to avoid the high tariffs under the Sino US trade war.
How many years ago was Vietnam at the stage of China’s development? Hu Chao said that he likes to look at this issue from the perspective of urbanization rate indicators. Vietnam’s current urbanization rate is about 39%, which is close to the level of China in 2000. Based on this judgment, Hu Chao invested heavily in stocks in real estate, banking and other fields.
Fu Peng, chief economist of Northeast Securities, made a slightly different observation. Combined with his own experience of field research in Vietnam, he believes that in addition to some parts of Vietnam like China 20 years ago, the other part is like China today. He found that the young people in Vietnam are almost the same as those in China, so the local e-commerce and other industries are developing very fast. Therefore, in his investment portfolio in Vietnam, he also allocated some consumer and technology stocks, such as e-commerce, mobile games, etc.
The premise of the above logic is that Vietnam can develop along this expected track. Many Chinese with Vietnamese work or business experience think that Vietnam’s “labor dividend” is not as good as China’s more than a decade ago. A former engineer of a large state-owned construction company in China, who was once assigned to the factory building project in Ho Chi Minh City, told Caijing that what he remembers deeply is that in the rainy season in Vietnam, it often rains suddenly at two in the afternoon and stops at three. After the rain stops, the workers on the construction site no longer come back to work that day. However, the more common view is that among the Southeast Asian countries, Vietnamese are more industrious, especially Vietnamese women, and their labor productivity is even close to that of Chinese factories.
Although the momentum is good, the volume of Vietnam’s economy and securities market is not large. Hu Yifan, Asia Pacific Investment Director of UBS wealth management, told Caijing that he was not particularly optimistic about Vietnam’s market“ Although Vietnam’s economic recovery is relatively stable after the epidemic, Vietnam’s stock market has limited capacity and is not particularly recommended in the Asian market. ”
In fact, in terms of economic aggregate, Vietnam is equivalent to one province of China. According to the data of China’s National Bureau of statistics, China’s total GDP in 2020 is about 14.73 trillion US dollars. According to the data released by Vietnam’s National Bureau of statistics, Vietnam’s GDP in 2020 is about 271.2 billion US dollars, and Vietnam’s total GDP in 2020 is between Inner Mongolia and Shanxi Province of China. From the perspective of per capita GDP, Vietnam’s per capita GDP in 2020 will be 2800 US dollars, about half of Gansu Province, which has the lowest per capita GDP in China. Limited by the total economic volume, the total market value of Vietnam’s stock market is relatively small. At present, the total market value of Vietnam’s stock market is about $220 billion – smaller than that of large enterprises such as Facebook and Alibaba.
2、 Retail investors enter, foreign capital withdraw
Vietnam has two major stock exchanges: Ho Chi Minh City stock exchange and Hanoi stock exchange. The Ho Chi Minh stock exchange is similar to the main board of China. According to the latest statistics of the World Federation of exchanges on June 2, 2016, its total market value is US $2016.5 billion. The Ho Chi Minh index is an all index index reflecting the market situation of the Ho Chi Minh stock exchange. Hanoi stock exchange is similar to China’s growth enterprise market, with a total value of US $15.16 billion. Vietnam index is an all index reflecting the market of Hanoi stock exchange. Therefore, Ho Chi Minh index can better represent the overall situation of Vietnam stock market.
The starting point of this round of rise in Vietnam’s stock market can be traced back to March 2020, when the Ho Chi Minh index bottomed out to 649.10 points, and then went up all the way. So far, the cumulative rise has exceeded 100%, and the bull market has continued for more than a year.
The rise of Vietnam’s stock market is not only related to Vietnam’s economic fundamentals, but also related to Vietnam’s low interest environment, the structure of market participants and many other factors.
From the perspective of capital, the interest rate of Vietnam’s banks has been reduced before, and the Vietnamese government has opened online securities accounts, so many Vietnamese investors, lured by the rising market, withdraw their bank deposits and put them into the stock market. Vietnam Securities News recently reported that the bank’s cash outflow is the decisive condition for the emergence of millions of first-time entry accounts. The bank not only provides mortgage loans to buy stocks, but also provides advance loans to sell securities for 3-5 days (T + 3), helping investors transfer two rounds of funds in three days.
In addition, a large number of new individual investors also brought incremental funds. According to the Vietnam securities depository, individual account traders have increased by 50% over the past year. In May alone, Vietnamese investors opened as many as 114000 securities accounts, a monthly high. This is the third consecutive month that more than 100000 accounts have been opened.
It should be noted that the degree of retail trading in Vietnam’s stock market is very high. The market participants are mainly retail investors and foreign investors, and there are few domestic institutional investors, which increases the risk of market volatility.
“At present, about 95% of the daily trading volume of Vietnam’s stock market is generated by private investors rather than institutional investors,” said Dominic Scriven, co-founder and chairman of dragon capital, which ranks first among overseas investors in Vietnam and manages about US $5.5 billion of offshore capital in Vietnam, We are now going to be one of the biggest institutions to invest in stocks, and the investors above us are the government. ”
At the same time, the influence of foreign investors in the Vietnamese market has declined significantly in the past year. According to le Ngoc Nam, director of investment analysis and consulting of new Vietnam securities, foreign investors have historically contributed about 20% of the market liquidity, so such traders often have a strong impact on the market. However, the average contribution of foreign investors to monthly liquidity was only 12.4% in 2020, and continued to decline to only 8.7% in the first five months of 2021.
Hu Chao believes that the large number of retail investors is a risk worthy of attention, because the behavior of retail investors, especially new ones, is easy to be irrational. On the one hand, they bring incremental capital to the market, on the other hand, they also lead to market volatility, especially intraday volatility.
“At the same time, the proportion of institutional investors in Vietnam is not large, which can not guarantee the stability of the market.” Hu Chao is worried that when the trading system is slow, retail investors will behave irrationally. However, he believes that if the assets of these companies are still of high quality, they will not give up in the long run.
It is worth noting that foreign investors have been selling their Vietnamese stocks since the second half of last year, and this trend continues to this day. Mu Dajun was the head of global investment company of future asset group, responsible for managing global investment funds. In his view, there are two main reasons for the withdrawal of overseas investors in the Vietnamese stock market.
The first is the market. The annual yield of Vietnam vn30 index is as high as 88.6%, and there is a need to cash in profits. At present, foreign investors in Vietnam are actually limited to 49%, while airlines and banks are limited to 30%. Some large market value stocks and bank stocks have reached the limit of foreign ownership. If foreign investors want to invest in these Vietnam stocks, they can only purchase old foreign stocks at a price higher than the current price in OTC trading, which is not convenient for investment.
In addition, muda believes that global capital is shifting from marginal markets to developed country markets. He believes that several developed countries, including the United States, have ensured the supply of vaccines, the speed of vaccination is very fast, and the economic growth rate is expected to recover. However, the different speed of vaccination of the new crown vaccine will lead to different expectations of economic recovery, which will affect the trend of stock markets in various countries.
However, many investors still believe that although Vietnam’s main index has reached a new high since 2018, the valuation is still in a reasonable range considering the improvement of corporate profitability. For example, the Vietnam Association of financial advisors (vfca) evaluated in its latest local stock market report that the current P / E ratio of the Ho Chi Minh index is between 18.5 and 18.7 times, which is not expensive compared with 29 to 30 times of neighboring Thailand, Indonesia and Malaysia.

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