Vietnam’s stock market plummeted: Causes, prospects and solutions

Although affected by the general downtrend of the world stock market, it is worth noting that the negative movements of the market took place in the context of a relatively good and stable domestic macroeconomy compared to the world. Business production of enterprises is also relatively positive. Dr. Can Van Luc and the authors of the BIDV Training and Research Institute have made specific assessments and made recommendations to …

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Recently, Vietnam’s stock market has been on a very strong downward trend. Although influenced by the general downtrend of the world stock market, it is worth noting that the negative movements of the market took place in the context that the domestic macro-economy is relatively good and stable compared to that of the domestic stock market. In the world, production and business of enterprises are also relatively positive. This makes people as well as investors somewhat confused, worried,at the same time, questioned the reason for the sharp drop in the market in the context of such a positive domestic economy. The fact shows that, due to the high interconnectedness between the securities – real estate – banking markets, the unstable psychology of some investors can lead to overreactions, thereby causing negative consequences. negative consequences for the economy as well as the financial market and investors themselves. The article clarifies the sharp decline of Vietnam’s stock market over the past time; identify risks and challenges and propose some solutions to develop and healthy the market in the coming time.

Movements of Vietnam’s stock market from the beginning of 2020 until now

In order to have a panoramic view of the trend of Vietnam’s stock market in relation to the international stock market, the research team chose a benchmark starting from March 2020 to present. This is the period when the Covid-19 epidemic has spread globally, causing the decline of most stock indexes in the world, including Vietnam. At this point, the impact of the pandemic is fully reflected in stock prices in the markets, and an uptrend in stock prices is also starting to take shape. By observing the movements of the Ho Chi Minh City Stock Exchange Index. With the Ho Chi Minh Stock Exchange (VNIndex) and the main indexes of the world stock market, the research team draws three main conclusions as follows:

Firstly , in the period from mid-March 2020 to the end of October 2022, the global stock market (including Vietnam) experienced two main trends, that is, a prolonged uptrend (from about mid-March to mid-October). March 2020 to the end of December 2021, then a downward correction trend (from the beginning of 2022 to now).

Second , the movements of the Vietnam stock index closely followed the main stock indexes in the world in terms of the time of the beginning and the end of the uptrend and the beginning of the downtrend (usually only about half a year later than the international market). 1-2 weeks).

Third , although closely following international market developments in the direction of increased risk (Figure 2); but the increase and decrease in price of VNIndex is stronger than that of most major international stock indexes. Specifically, from March 2020 to the end of December 2021, the VNIndex increased from about 662 points to about 1500 points (up 2.3 times ), higher than the increase of the US stock index (representing the growth of the US stock index). by S&P500) during the same period (2.04 times), Europe (Euro Stoxx600 – 1.7 times), Asia (MSCI Asia – 1.6 times). Similarly, from the beginning of this year to the end of October 2022, VNIndex also decreased from about 1500 points to 1027.36 points ( -32% )), much higher than the drop of US stocks (S&P 500, down -20%), Europe (Euro Stoxx600, -14%), Asia (MSCI Asia, -29%). This shows that the risk level of Vietnam’s stock market is higher than that of major international stock markets . The high level of risk in the Vietnamese stock market is also reflected in Vietnam’s credit default swaps (CDS) index (Figure 2).

Fourth , the decline of the domestic stock market seems to be in contrast to Vietnam’s macroeconomic developments in 2022, when GDP growth will reach a high level (about 8% –  According to the forecast of the BIDV Training and Research Institute). , GDP growth for the whole year of Vietnam in 2022 can reach 7.9–8.1% (base scenario) and growth in 2023 may reach 6–6.5 % ), inflation is controlled at a low level. low (average CPI increased by about 3.3%) compared to the world (8.8% – Vietnam’s consumer price index (CPI) averaged only 2.89% in the first 10 months of the year compared to the same period last year Before and for the whole of 2022, the forecast is about 3.3-3.5%. Meanwhile, according to the IMF forecast, world consumer inflation (CPI) will peak at the end of 2022, averaging 8.8%. in 2022 to 6.5% in 2023), The production and business situation, the profitability of listed companies are also relatively positive (data from the financial statements show the pre-tax profits of the 200 largest enterprises on the Vietnamese stock market in the first 9 months). in 2022, an increase of 22% over the same period). This caused some investors to become bewildered and worried, and at the same time questioned the reason for the sharp drop in the market in such a positive economic context.

The reason why Vietnam stock market plummeted

According to the research team, the Vietnamese stock market’s sharp decline in 2022 is due to a number of main reasons such as: (i) the general trend of downward adjustment after the hot up period; (ii) increased risks and challenges to the global economy as well as Vietnam; (iii) cash flow into stock market decreased; (iv) great pressure to release mortgages; (v) psychology and confidence of investors are affected in the context of increased risks and especially after the market violations have been prosecuted recently; (vi) crowd psychology affects the behavior of investors, especially individual investors.

Firstly, the market is entering a period of strong downward correction after more than two years of rather hot gains.As analyzed, the world and Vietnam stock markets have experienced a rather hot growth period in the past 2 years (from the second quarter of 2020 to the end of the first quarter of 2022), and there were times when many stock indexes rose to high levels. the highest level within 20-30 years, the VNIndex also set a new high, the highest in history (1528 points on January 6, 2022). This growth momentum is unsustainable when mainly based on factors such as cheap cash flow from supportive policies during the Covid-19 pandemic, the phenomenon of using high financial leverage in the context of low interest rates, psychological The excitement (at times became “excessive”) of many investors, some fields such as IT, e-commerce, pharmaceuticals, real estate… . In addition, for Vietnam, there are other characteristics such as higher risk due to crowd psychology, low investor quality, etc.

Therefore, when the global and domestic economic context changes (inflation increases with the risk of global recession), the global financial – monetary market tends to tighten, interest rates and exchange rates tend to tighten. increase, investors adjust their assessment and expectations, the sharp correction of the global stock market (including Vietnam) is inevitable, especially from April 2022 to present (Figure 1).

Second, increased risks and challenges for the global economy and Vietnam . According to a recent report by Dr. Can Van Luc and the author team of BIDV Training and Research Institute, the possibility of a slight global economic recession in 2023 is above 50% (from 55-60%), including major partners of Vietnam ( Like the US, the possibility of a recession of 60-70%, the EU 50-60%…), causing the export and investment markets to shrink, in the context that next year’s global CPI is still at a high level (increasing). around 6.5%, although down from 8.8% in 2022), before returning to a 4% trajectory in 2024 and about 2.5-3% thereafter.

For the Vietnamese economy , like Dr. Can Van Luc and the authors of the BIDV Training and Research Institute stated in a recently published report that the Vietnamese economy faces 5 main risks and challenges by the end of 2022 and 2023; that is: (i) from the outside, central banks of other countries continue to raise interest rates to control inflation, causing interest rate levels to increase, exchange rate risks, debt obligations continue to increase, liquidity pressure is greater. ; the Russia-Ukraine conflict also affects the supply chain and prices of raw materials, energy, food – food; China’s growth is low due to cautious opening and restructuring,…; the possibility of a slight global economic recession in 2023 is present, narrowing export, investment and international tourism markets; in water, (ii) pressures of inflation, interest rates and exchange rate increase are still large in the context of narrow monetary policy space, businesses facing difficulties in cash flow, debt repayment obligations, and output markets; (iii) disbursement of public investment and national target programs, the Recovery Program, although promoted, is still slow; (iv) the potential increase of bad debt is still a challenge in the context of economic growth prospects slowing down, many businesses still facing difficulties; (v) the stock market, real estate… are adjusting down and getting healthy. Accordingly, it is forecasted that Vietnam’s GDP growth in 2023 will slow down, about 6-6.5% while inflation tends to increase (CPI increases about 4-4.5% ).  

Third, cash flow into Vietnam stock market dropped sharply compared to 2 years ago . This phenomenon is due to the fact that most of the main cash flows into the Vietnamese stock market have decreased recently. Specifically, foreign investors no longer have easy access to cheap capital as before due to the end of support packages, rising interest rates, tighter global financial market liquidity and the banking system. global also tightened lending conditions due to fear of recession, increased global financial risks.

Domestically, foreign investors were in a net selling trend of VND 3,500 billion in September and VND 1,300 billion in October 2022, respectively. Generally, in the first 10 months of 2022, foreign investors have net sold more than 1,000 billion VND (although this level is much lower than other countries in the region). Besides, the cash flow of domestic investors is also limited in the business contexthaving more difficulty in accessing credit capital due to declining financial capacity, tightly controlled credit growth limit; Issuing corporate bonds (Corporate bonds) more difficult after recent violations and stricter legal regulations. In addition, the pressure to mature corporate bonds is increasing (about VND 85,000 billion in the fourth quarter of 2022, VND 271,000 billion in 2023 and about VND 330,000 billion in 2024, according to the Ministry of Finance), the acquisition of corporate bonds takes place more ( In the first 10 months of 2022, about 170 trillion VND was redeemed ahead of time, up 70% over the same period), partly because issuers have to fulfill this obligation when violating the issuance plan. implementation), plus the slow disbursement of public investment, slow capital turnover, increased input costs and mutual debt, some enterprises have to: (i) increase the use of their own capital,Individual investors also limit margin loans to invest in securities (in the first 9 months of 2022, the margin loan balance is at VND 153,000 billion, down 18% compared to the end of 2021), partly because Credit institutions control lending, securities investment more tightly and margin lending rates increase. Other cash flows such as profit from real estate business, securities investment… also declined. This also partly explains why the capital mobilization of the credit institution system has grown quite low (about 4.6% year-to-date compared to 5.5% growth in the same period in 2021 and 8% in the same period last year). year 2020).

Fourth, pressure to release mortgages: according to Fiinpro, margin loans of securities companies as of the end of the third quarter of 2022 are at VND 165,000 billion (although down 18% compared to the end of 2021, but still a fairly high level. compared to the period before 2019). With interest rates rising, debt repayment obligations increasing, and stock prices plummeting, some investors who own a lot of stocks have had to sell off their mortgages (force sell phenomenon) to offset the decline in the share price. collateral for margin loans, is also to lower the debt ratio to a safe level according to regulations. This mortgage settlement spiral took place very strongly in the past October.

Fifth, the confidence of stock investors dropped sharply . Besides the negative impacts from the context of macroeconomic, economic – financial risks as mentioned above; Investor sentiment is also affected by cases of law violations, prosecution of leaders of some large enterprises, and measures to correct the stock market and real estate in the past time, along with a number of false rumors. losses on social networks…etc. Not only the shares of the violating companies but also other stocks were sold off due to the widespread fear and caution, leading to many stock prices falling to the floor. The slow handling, settlement and removal of difficulties, obstacles and legal barriers also have a certain impact on the market and investors’ confidence.

The cautious sentiment and risk aversion increased, leading many investors to choose less risky and safer investment channels. This led to the phenomenon of the market “hibernating” with the average trading value per session on HOSE in the last 6 months was only about 15,000 billion VND, in October 2022 it only reached 10,200 billion VND/session (decrease). 40-50% compared to the average level of more than 21 trillion VND/session in 2021). The sharp drop in market liquidity created a spiral that negatively impacted the psychology of investors who were holding stocks (worried they couldn’t sell), ready to sell at all costs, thereby pulling stock prices further down. deep.

Sixth , crowd psychology is quite common in the market. The impact of crowd psychology on Vietnam’s stock market is even stronger than in other countries due to three main reasons. Firstly, the structure of investors in Vietnam is different when individual investors account for 80% of transactions in the market (while this proportion in developed countries is only about 40–50%). According to statistics, individual investors also account for a fairly large proportion, holding 33% of corporate bonds in Vietnam, while in India it is 5%, Korea is 1%…). The characteristic of the group of individual investors is that investment decisions are sometimes not based on reason or thorough financial analysis, but mainly according to the crowd, even rumors. Two is ,high leverage ratio (as mentioned above), along with crowd psychology, created a downward spiral – selling mortgages, making the market more and more under strong selling pressure every time there is a correction. . Third , the Vietnamese stock market has also appeared in the situation where some businesses inflate prices leading to prosecution, making investors have the mentality of not attaching importance to objective assessments and analysis, so they often switch state very quickly from “excessive excitement” to “excessive pessimism” every time the market corrects.

Outlook for Vietnam’s stock market by the end of 2022 and 2023

Despite the difficulties, risks and challenges that caused the market to plummet recently, according to Dr. Can Van Luc and the author team of BIDV Training and Research Institute, Vietnam stock market still has the prospect of recovering in the last month of 2022 and growing more positively than in 2023 (about 15-20% ) for the following 5 main reasons : this.

First, Vietnam’s economy in 2023 is forecast to slow down, but still at a high rate . According to a forecast of the BIDV Training & Research Institute, Vietnam’s economy will grow by about 8% in 2022 and 6-6.5% in 2023, in the context that many global economies are facing many difficulties and facing threats. recession (as mentioned above).

Second, macroeconomic fundamentals and major balances are basically maintained and under control.Despite great pressure from risks in the world and in the country, Vietnam still maintains macroeconomic fundamentals such as inflation at a relatively low level, interest rate and exchange rate rise under control. As of October 31, 2022, the exchange rate has increased by about 8.85% (ie VND has depreciated by 8.85% against USD) since the beginning of the year (vs Japanese Yen -28%; Chinese Yuan Renminbi) National -14.6%; Thai Bath – 13.3%; Indonesian Rubi -9.11%…). Similarly, the average CPI in the first 10 months of the year increased by 2.89% over the same period, the whole year is forecast to increase by 3.3% (the global average is 8.8%) and in 2023 about 4-4.5 % (the global average is about 6.5%). Public debt, external debt, budget deficit and debt repayment obligation of the Government, although in an upward trend in the medium term, are still basically within a safe threshold.

Third, the real economy, especially business activities, is still basically positive, although more difficult . Business activities recently recovered strongly thanks to the reopening of socio-economic activities. The number of newly registered enterprises in 10 months increased by 34.3% and the number of enterprises returning to operation increased by 49% over the same period last year. Profit before tax of over 200 listed companies in the first 9 months of the year increased by 22% over the same period, the whole year 2022 is forecast to increase by about 18% and in 2023, it is forecasted to increase by 10-15%.

Fourth, international credit rating agencies assess Vietnam’s prospects as “positive” in the medium term.At the end of October 2022, Fitch Ratings ranked Vietnam’s long-term foreign currency issuer at BB with a positive outlook, in which positive growth prospects in the medium term were assessed; Government debt, external debt and budget deficit, although increasing, are still low compared to similar countries. The organization assesses external risks for Vietnam, including hostilities in Ukraine, tighter global capital conditions, and the openness of a large economy that is vulnerable to external shocks. Domestically, inflationary and exchange rate pressures increased in the context that the USD was still appreciated and foreign exchange reserves decreased, the risks from the SOEs were still weak and the capital adequacy ratio of the banking system was still low… Vietnam needs to pay attention to improve. Similarly, at the beginning of September 2022, Rating agency Moody’s has also upgraded Vietnam’s long-term national credit rating from Ba3 to Ba2, with a stable outlook due to its appreciation of the intrinsic strength of the Vietnamese economy and better resilience. of the economy. Regarding risks, Moody’s also believes that the low capital adequacy ratio of the banking system, real estate market risks and external risks (such as economic recession in some major partners, the situation of geo rising value and prices…) are the main challenges facing the Vietnamese economy now and in the coming year. These risk assessments are in good agreement with the authors’ assessments. Real estate market risks and external risks (such as economic downturn in some major partners, geopolitical situation and rising prices…) are the main challenges for the Vietnamese economy. now and in the coming year. These risk assessments are in good agreement with the authors’ assessments. Real estate market risks and external risks (such as economic downturn in some major partners, geopolitical situation and rising prices…) are the main challenges for the Vietnamese economy. now and in the coming year. These risk assessments are in good agreement with the authors’ assessments.

Fifth, Vietnam’s stock price is at an attractive level when the market’s PE index is in a low-lying area after a downward correction . The VNIndex’s PE is currently at 10.2 (equivalent to the historical bottom during the Covid-19 pandemic). This level is considered attractive when it is lower than most other markets in the world (Figure 4). In addition, past data shows that every time the VN-Index’s P/E reaches 10.x, the market often has a strong retracement wave after that, typically in the period 2020-2021. Although the context is different and although the PE index is only a reference, investors also analyze many other indicators (such as EPS, P/B …) but it is also an interesting time.

Some solutions to recover and develop healthy Vietnam stock market

In order for Vietnam’s stock market to recover, develop healthier and more sustainable in the coming time; The expert group of BIDV Training & Research Institute recommends that the National Assembly, Government and ministries, branches and localities should prioritize the following policies and solutions.

Firstly, continue to stably stabilize the macro-economy, control inflation, and ensure great balances of the economy .Accordingly, the authorities need to keep a close eye on the international economic and financial situation; proactively analyze and forecast developments in the international financial – monetary market in order to have a suitable proactive response scenario; continue to operate monetary policy in a cautious, proactive, flexible and synchronous manner in order to manage exchange rates, interest rates and credit at an appropriate level; strengthening stabilization and healthyization of markets (stocks, bonds, real estate, foreign exchange, gold, petrol…); promote communication on prices, inflation, policies… to reduce inflation expectations, hoarding and speculation. Promoting and diversifying export markets, opening international tourism appropriately… will also contribute to increasing supply and reducing pressure on foreign currencies and exchange rates.

Second, accelerate the implementation of components in the Recovery Program, national target programs and disbursement of public investment . Accordingly, the drastic and synchronous solutions mentioned in the Government’s directives and instructions should be strictly followed and implemented, striving for the end of the year, reaching about 30-35% of the rehabilitation program and about 30-35% of the recovery program. 85-90% of public investment disbursement plan. Early research on the possibility of continuing to use fiscal policy as the main force (mainly reducing taxes and fees, etc.) to support businesses in the context of increasingly limited monetary policy space.

Third, accelerate the completion and enforcement of institutions, strengthen reasonable inspection and supervision, and improve transparency and efficiency for the market.Accordingly, the authorities focus on appropriate inspection and supervision (too many and overlapping, ineffective at this time is not appropriate); healthy capital market, real estate market, strong opening of stock capital and corporate bonds in the spirit of Resolution 86/NQ-CP (July 11, 2022) on capital market development Directive 13/CT-TTg (August 29, 2022) on real estate market development, Directive 15/CT-TTg (September 16, 2022) on macroeconomic stability and Decree 65/ 2022/ND-CP (September 16, 2022) on private placement of corporate bonds (amended Decree 153). Ensure flexibility, timeliness, efficiency, better meet the liquidity needs, cash flow and debt repayment obligations of enterprises, especially real estate enterprises; ensure liquidity, safety of the system of financial – credit institutions…etc

Fourth, strengthening strengthens investor sentiment and confidence . Authorities and issuers need to quickly deal with it, ensuring the legitimate interests of investors; strictly handle and promptly settle cases of violation of regulations, spreading false rumors on the stock market recently. Policies and solutions need to be consistent, clear, have a roadmap and publicly update the implementation situation. In the long term, it is necessary to develop and consistently implement a financial education program to improve the capacity of investors, help them make investment decisions, use reasonable financial leverage, and minimize psychological distress. crowd. Focus on developing professional investors (individuals and organizations), development of investment funds, pension funds, real estate trusts, etc. These funds can also play a leading role in the market, limiting the situation of rising or falling due to excessive excitement or pessimism. of some investors. Investment funds will therefore help the market become more stable and develop sustainably, and at the same time provide more suitable investment channels for people.

Fifth, pay attention to controlling systemic risks, connecting banks – securities – insurance – real estate . Practice proves that these four fields have a close interrelationship with each other. Some recent cases of violations on the stock market have shown the complexity and interconnection in this relationship. Accordingly, functional agencies need to strengthen effective policy coordination, recognize phenomena, exchange information, and manage and supervise the financial-real estate system in the overall, immediate and immediate relationship. long-term, instead of discrete, local, jerky and short-term.

Finally, investors need to be very calm, should not fall into a spiral of selling and getting, should not rely on false rumors, crowd psychology, but need to verify and grasp the situation and prospects of investors. For businesses, diversifying investment channels, limiting leverage and persistently improving knowledge and experience in securities investment are essential.

H. Kim (according to the author’s report)/Market life