The biggest risk to Vietnam’s stock market would come mainly from global political and trade issues rather than from Vietnam itself, according to Viet Dragon Securities Company (VDSC).

However, the market is “familiar with unfulfilled expectations and external risks. Hence, the market sentiment will not be affected much,” stated the VDSC in its latest strategy report.

According to the report, the biggest support for the market is expected to come from the consistent policy implementation by the government to stabilize macroeconomic factors and encourage domestic firms to develop.

“This will benefit the Vietnam economy in general and domestic companies in particular in the long term,” said the report.

In 2020, net income and earnings per share (EPS) growth of listed companies is forecast to recover at two digit numbers when it was flat in 2019.

Meanwhile, in a context that capital flow will not be as much now as in the late 2016 to early 2018, it is assumed that the VN-Index’s growth will moderate and be closely related to fundamentals rather than price bubble.

In 2020, the VN-Index is predicted to move in range of 950 to 1,120.

Foreign investors can turn to net buyers

In Vietnam's stock market, foreign investors have been net buyers for the past two years, they mainly bought via put-through transactions. Meanwhile, they have been strong net sellers on the exchange via matching-order transactions, in turn negatively impacting the VN-Index.

Nevertheless, foreign capital outflow through matching-order transactions has declined sharply as the value dropped from nearly US$700 million in 2018 to US$50 million in 2019. In fact, foreign investors were net buyers via matching-order transactions with a value of US$121 million in the first four months of 2019 and has turned to net sellers mainly because of rising US-China tension in May.

VDSC expected foreigners to turns to net buyers through matching-order transactions in 2020 because 1) exchange-traded funds (ETFs) in Vietnam can continue to draw money from Thailand and Korea, 2) Vietnam’s weight in MSCI Frontier Market 100 Index can increase to 30% when Kuwait shifted to the MSCI Emerging Market Index, 3) progress in US and China negotiation, and 4) new ETFs are allowed to launch.

Furthermore, if the divestment and IPO activities pick up in 2020, it will help to draw foreign capital but not as much as in late 2017.

Limited local capital

Even though there is expectation that the foreign capital flow to turn around in 2020, markets may face difficulties in drawing money from local investors amid other investment channels such as corporate bonds, gold, and real estate remaining high performers. Additionally, the State Bank of Vietnam (SBV)’s lowering the cap on short-term deposit interest rates should help the market to draw money from bank depositors, but above-1-year term interest rates remain high. Positively, the main support for the market to draw local capital is high earnings growth and state divestment and IPO expectations.

Based on forecast earnings from Bloomberg, earnings growth of Vietnam’s top 50 public firms in term of market cap will increase in 2020. In detail, net income and EPS growth are estimated to reach 21.7% and 11.6% year-on-year respectively, compared to estimated figures for 2019 of 15.8% and 1.3% respectively. Contributing the most to the Top 50’s net income in 2020 are Vinhomes, the real estate developer of Vingroup, and Vietcombank, with their respective net income to increase 31.6% and 39.2% year-on-year respectively.

Even when net incomes of Vinhomes and Vietcombank are excluded, the other top 48’s net income is forecast to increase 18.2% year-on-year. Despite the net income growth of main sectors such as banking and retail, forecast at 26.4% 28.7% year-on-year, decline slightly, they still remain high. Contrarily, net income growth of another important sector, real estate, is expected to rise.