Although several industry groups have the potential to play a leading role in the market this year, investors should still carefully consider whether the price index of an industry or a particular stock has reflected its growth expectations or not.
Last year was an unforgettable year for Vietnam’s stock market as it constantly made a breakthrough and reached unprecedented heights in history. Given the outstanding growth, the VN-Index climbed up the ladder to the top of the world’s most profitable markets. After a year of “ecstasy,” investors should next answer the question as to what the prospect for the VN-Index in 2022 is, whether the valuation of the stock market at home remains attractive, and if they want to pick some stocks to invest in, which groups will offer the opportunities are.
The supporting factors
Basically, most experts have opined that this year will be a year with more challenges for the growth momentum of the VN-Index. The phenomenon in which “everyone who invests wins” that occurred in 2021 when stocks went up across the board will hardly repeat in 2022. Instead, the market will face more risks: major central banks in the world are tightening their monetary policy, the pandemic may remain complicated, and inflationary spiral and bad debt of the banking system are both building up. However, on the contrary, a number of factors are expected to continue to support Vietnam’s stock market in 2022.
The first is “cheap money.” Low interest rates are likely to be maintained by the State Bank of Vietnam in an attempt to support the economic recovery. Inflation is indeed rising on a global scale. Yet in Vietnam, the CPI at the end of 2021 was only 1.84% higher than in 2020—the lowest increase since 2016. This means policymakers may find it easier to keep the expansionary monetary policy in place this year, which will thereby become the driving force to draw cash flows into securities.
The second refers to investment channels. In 2022, the stock channel may face rivalry from the real estate sector. It has been rumored that some investors will “take profit” to have a considerable sum of money for realty investment. Still, this possibility will hopefully be neutralized by the return of foreign capital and the further surge in the number of new investors. Moreover, compared with other popular investment channels in Vietnam such as savings, gold, and foreign currency, securities still have several advantages at the moment.
The third factor relates to cash flows. After a booming year, the number new investors will probably fall in 2022. However, the number of newly opened accounts is forecast to remain at 80,000-100,000 a month. If the prediction is accurate, the goal of having the number of securities accounts equivalent to 5% of the total population of Vietnam will soon be achieved before the deadline (2025).
Sectors that lead the way
In case economies around the world recover well, whereas there are no massive pandemic outbreaks in Vietnam, and economic solutions to supporting the business community are properly implemented, Vietnam’s GDP growth this year, in the baseline scenario, will be around 5.8%, according to FiinGroup. In contrast, if the pandemic becomes unpredictable as a result of new variants, major trading partners fail to recover as expected, domestic production and business activities are mired in troubles, and the Government’s support policies are not timely carried out, Vietnam’s GDP growth in 2022 may be some 4.5%. In the most optimistic scenario in which the pandemic is well controlled, the supply chain recovers swiftly, logistics costs fall, and aid packages for businesses and people are broadened, FiinGroup believes Vietnam’s GDP this year will be about 6.7%.
FiinGroup’s report also points out a number of industry groups which is said will be “leading” in 2022. The first are the groups stimulated by public investment. Public investment plays the key role, and at the same time, is the “seed capital” which incites the growth of private investment. It is expected that public investment will concentrate on infrastructure construction, innovation and digital development this year. For this reason, the sectors of construction and building materials have great potentials for development in 2022.
Next come the groups representing a high rate of exports. Along with the recovery of purchasing power worldwide, especially the supply drop in China, Vietnamese enterprises active in such industries as electronics, textiles, seafood, wood and wood products, rubber, iron and steel are more likely to make a breakthrough.
Coming third are those groups bolstered by the recovery of domestic demand. As the period of social distancing and travel restrictions to keep the pandemic in check is over, businesses in the food and beverage, retail and aviation industries will be the main beneficiaries.
The fourth are e-commerce and logistics. The ongoing drastic changes in people’s online shopping and consumption habits in the context of Covid-19 is the driving force for e-commerce to further thrive in 2022. In addition, expectations that Vietnam’s international trade will continue to grow hinging on the positive impact of the already concluded free trade agreements, along with the rise in the demand for goods transportation at home as a result of the recovery in production, will benefit supporting industries such as logistics as well.
The fifth is the group of information technology, particularly the segments of enterprise software, equipment and services. The great potentials of digital banking have reinforced the trend of technology investment and digital transformation within the banking sector, which is growing in both speed and scale, and is one of the catalysts for this industry group.
As cited above, several industry groups can have bigger potential than others. They may therefore play a leading role on the market this year. Although several industry groups have the potential to play a leading role in the market this year, investors should still carefully consider whether the price index of an industry or a particular stock has reflected its growth expectations or not. The reason is that in this period of “cheap money,” the prices of quite a few stocks have run far ahead of the changes in fundamental factors, which poses a high risk of corrections.