Vietnam stocks are outshining their regional peers due to interest-rate cuts and government aid, a stark turnaround after being the world’s worst-performing share market last year.
(Bloomberg) — Vietnam stocks are outshining their regional peers due to interest-rate cuts and government aid, a stark turnaround after being the world’s worst-performing share market last year.
The benchmark VN Index has rallied 9.8% in 2023, while equities have struggled across the rest of Southeast Asia. Last year’s star performer, the Jakarta Composite Index, has dropped 2.4%.
Investors have returned to Vietnam after the tumble in stock prices last year made valuations attractive, and as the government vowed more measures to help floundering businesses and bolster economic growth.
“We see an increase in appetite for riskier assets, especially as cheap valuations offer attractive yields versus the recent decline in deposit rates,” Vietnam-focused Dragon Capital said in a report this month. Retail investors have also grown more confident as lower borrowing costs freed up more cash for consumers, it said.
Average daily trading value has jumped to more than $732 million in June, the highest since the same period in April 2022, according to data compiled by Bloomberg. Overseas investors have bought a net $38.2 million of stocks this month as of June 16, after being net sellers during April and May. Other markets in the region such as Indonesia, Thailand and Malaysia have seen net outflows this month.
The government earlier this year allowed firms to extend their debt maturities to as long as two years and use other assets to make principal and interest payments on bonds as part of efforts to ease a liquidity crunch. Vietnam will also prioritize economic growth to help support export-dependent businesses that are struggling with reduced orders from overseas.
Read more: Vietnam Sets 12-Month Debt Suspension for Struggling Firms
The State Bank of Vietnam is also bucking the trend among regional central banks by cutting interest rates early to spur growth and reduce financing costs for companies. The monetary authority implemented a fourth round of easing measures Monday, even as Malaysia and Thailand have continued to raise borrowing costs. Policy makers in Indonesia and the Philippines are both expected to keep rates on hold on Thursday.
Analysts predict the authorities will probably step up measures to boost the economy after lawmakers stood by their 6.5% annual growth target despite first-quarter figures falling short of forecasts.
This is a “good chance to accumulate equities in the longer term,” particularly in the consumer sector, said Jiyun Chung, head of equities at Manulife IM Vietnam in Ho Chi Minh City.
There may still be some turbulence in the short term due to weak earnings and a slowdown in economic activity, said Marco Martinelli, a partner at Turicum Investment Management in Ho Chi Minh City. External factors such as higher commodity prices and weak demand from developed countries may also affect local firms, he said.
Still, “foreign investors, particularly strategic investors, continue to display a high level of interest in the Vietnamese market,” he said. At 10 times 12-month projected earnings, “the Vietnam stock market offers greater attractiveness compared to its regional counterparts,” Martinelli said. In comparison, Thailand’s SET Index and the Indonesian benchmark are trading at 15.5 times and 13.3 times forward earnings, respectively.
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