A sharp plunge in Vietnam’s stock market over the past two weeks is primarily due to investors taking profits after a massive rally and the correction will therefore be short-lived, analysts said.
The Vietnam index’s near 15% plunge from record highs hit on April 10 has come against the backdrop of a retreat in many emerging markets, driven by the rising fear of global trade protectionism and a rise in US bond yields.
The VN-Index was Asia’s best performer in 2017, with gains of 48% and, despite suffering losses of nearly 4% each day on multiple occasions this week, is still up nearly 7% this year.
“Vietnam’s stock market has been falling over the recent sessions mostly because investors are taking profits,” said Tran Anh Tuan, chief analyst at Vietcombank Securities.
The index, with a market capitalisation of US$140 billion, was trading around 1,037 points on Friday.
Besides impressive economic growth and the promise of foreign investment flows, the market has been propped up by a boom in equity issues and the initial public offerings (IPOs) as the Southeast Asian country speeds up a privatisation drive.
A recent one is Vietnam Technological and Commercial Joint Stock Bank, which is set to be the country’s biggest-ever IPO and raise roughly US$922 million.
John Yoon Young Joong, an analyst at Viet Dragon Securities Corp., said it also was possible that investors were reducing positions ahead of possible new rules that may cut the margin lending for leveraged trades.
“It seems that the market has gotten ahead of itself and rationalism is coming back to the market, which is good,” Yoon said.
Banks have been among the biggest losers since the April peak, with shares of Military Commercial Joint Stock Bank down 18.5% and Bank for Foreign Trade of Vietnam down 20.1%.
Barry Weisblatt, head of research at Viet Capital Securities, said recent media reports discussing high valuations in Vietnam have caused sentiment to turn negative.
Weisblatt said his firm had forecast in January that the index could hit 1,250 by year-end, supported by new share listings such as Techcombank and real estate firm Vinhomes, and that a price-to-earnings (PE) ratio of between 18 and 19 was reasonable.
“So, when it reached 1,204 at more than 21 times PE on April 9, even before either of these listings had been completed, it was well ahead of our forecast and vulnerable to a correction.”
Most analysts expect a quick recovery in share prices. While rising global yields are a risk, market watchers believe trade tensions between the United States and China could benefit manufacturers in Vietnam and other parts of Asia.
“With solid fundamentals, I expect the markets to normalize and resume their path toward gains of 20% to 25% for the full 2018,” said Weisblatt.