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ToggleDisclaimer: The author of this Outlook does not own any stocks or have any financial interest in the performance of any of Vietnam’s stock markets.
September was the first time in four months the Ho Chi Minh Stock Exchange didn’t record a gain.
This comes after a meteoric rise this year, with its key index gaining 395 points since January.
Notably, a lot of that growth has been driven by just a few stocks and a lot of hype, the latter of which looks like it may be tapering off as economic realities come to bear.
It’s in this framework that this Outlook reviews what happened in September and considers what this might mean moving forward into October.
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What happened in September?
Vietnam’s stock market levelled off in September with the VN-Index moving just 19.04 points down or 1.14 percent.
This is in stark contrast to the month before, when the index recorded a 176.69 point gain.
That is to say, there was a significant swing in the local bourse’s fortunes.
The VN30 was also flat, gaining just 0.11 points, or 0.01 percent.
This came on the back of just five stocks that recorded gains for the month, with the other 25 seeing their share prices fall.
Of those five that climbed, the lion’s share again came from Vingroup (VIC), its shares jumping 36.32 percent.
It was followed by LienViet Post Bank (LPV) with 10 percent, Vincom Retail (VRE), which gained 5.59 percent, Hoa Phat Group (HPG) with 2.36 percent, and Sacombank (STB) up 2.34 percent.
Notably, Vingroup was a significant outlier, with a bigger percentage gain than the other four combined.
Its drivers remain unclear, but local media have suggested launching several defamation lawsuits may have given the stock a boost, as well as a new thermal power project and a pending dividend payment.
However, given the stock has been climbing all year, now up 331.11 percent since January, it seems unlikely it was any one particular event in September that pushed its price higher.
Moreover, Vingroup looks to be in a precarious financial situation with its total debt now five times its equity.
Market Capitalisation
Market capitalisation fell by about US$2.5 billion in September to US$272.9 billion.
It is, however, still up about US$77.5 billion since the start of the year.
That said, again, this is largely the result of just a few stocks, all from the same ecosystem — VIC, VHM, and Vincom Retail (VRE) together account for almost half, with their collective market capitalisation growing by US$36.4 billion since January.
Foreign investor flows
Foreign investors continued to exit the market, with US$958.3 million worth of stocks net-sold in September.
There were 25 stocks in the VN30 that recorded falls in foreign ownership.
The biggest net-exits were seen in: Vietnam Rubber Group (GVR) with a 29.03 percent drop, Sacombank (STB) with 8.01 percent, Hoa Phat Group (HPG) with 7.43 percent, SeABank (SSB) with 6.62 percent.
Conversely, just five stocks saw a net increase in foreign ownership: Military Bank (MBB) with 27.80 percent, Vinamilk (VNM) with 0.89 percent, Becamex IDC (BCM) with 0.80 percent, Saigon–Hanoi Bank (SHB) with 0.18 percent, and BIDV (BID) with 0.11 percent.
Incidentally, foreign investors shifted funds out of all three Vingroup stocks listed in the VN30: VRE with a 4.07 percent drop, VIC with 4.22 percent, and VHM with 6.18 percent.
Trading activity
Liquidity in September was lower than in August, with an average daily trading volume of VND 31.3 trillion (US$1.85 billion); however, it was still heightened compared to the eight months before, which averaged VND 20 trillion (US$757.6 million) in trade a day.
Macro context
Macro factors have continued to reflect strain in Vietnam’s economy and do not bode well for the market.
Government bond yields
Vietnam’s 10-year government bond yield inched higher, closing out September at 3.761 percent from 3.689 at the start of the month.
This represents a gain of 7.2 basis points over August, with the total increase over the last twelve months now sitting at 106.8 basis points.
Inflation
Vietnam’s Consumer Price Index in August came in at 3.24 percent, with core inflation up 3.25 percent, year-on-year.
Inflation has been constrained by price caps on things like electricity and fuel; however, these are showing signs of strain.
In particular, a VND 44 trillion (US$1.67 billion) debt EVN is holding needs to be paid, and will likely be incorporated into electricity prices in the near future.
Credit has also continued to be pumped into the economy at a hefty clip, which is also putting inflationary pressure on the local currency.
Currency movements
The State Bank of Vietnam allowed the local currency to strengthen against the greenback to the tune of 59 dong in September.
The black market price also gained some strength.
However, the spread between the unofficial mid-market rate and the central bank’s peg is still significant at 5.49 percent.
Of note, with the dong’s managed peg under strain, the State Bank of Vietnam dipped into its foreign reserves in August, which, it was reported last month, was to the tune of US$1.5 billion.
This further chips away at an already risky, less than two months’ worth of imports in foreign currency reserves. It also looks to have only had limited impact.
That is to say, a more sustainable intervention, some form of currency reset, for example, or an interest rate hike, may be necessary.
The latter, in the context of the recent, rapid credit growth, likely to have significant implications for the market.
The FTSE Russell Upgrade
On a final note, there has been a lot of speculation about an FTSE Russell reclassification of the HoSE from a frontier to an emerging market, with an announcement due one way or the other October 8.
Historically, two key criteria, the time it takes to swap money for shares, and fees or losses that occur when a trade doesn’t go through, have not been possible to assess on account of traders being required to make payment up front.
Upfront payments for institutional investors have now been removed.
However, FTSE Russell still requires a practical assessment, and with just one failed trade recorded, there is very little data to make a proper evaluation.
In this context, it seems unlikely this will get up.
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(US$1 = VND 26,400)