“Based on what we’ve seen from foreign investors’ trading activities, and based on the current economic environment and condition of the stock market, we believe foreign investors will seek stock sectors likely to experience a cyclical recovery, such as banking and real estate,” said Tran Hoang Son, head of market strategy at Hanoi-based MB Securities, one of the nation’s top ten brokerages in revenue in 2014.
The stock market has signaled that the banking sector is back on track. In terms of market value, shares in the country’s four-biggest banks have advanced on average 23% on the last three months, a record high in the last two years, and double their regional peers. Vietinbank shares, for instance, have surged 28%, whilst Vietcombank shares have soared 17% in the last three months, compared to a 6.2 % boost in the benchmark VN Index.
“The banking sector has already bottomed out and will remain the focus this year, after years of being neglected in the stock market,” Son said.
Six bank M&A deals are set to take place this year in a bid to strengthen local banking operation and clean up the worst performers. Both lending and deposit rates are on the wane in the last couple of months, which in turn could boost consumption, production, and investment.
Son noted that within the banking sector, foreign investors seem more interested in shares in better-performing banks such as BIDV or Vietinbank. Likewise, the highly cyclical real estate sector with huge potential for recovery this year has also caught foreign investors’ attention, including the reduction in VAT on commercial housing projects that came into since April, 1 last year.
The country’s estate market is also warming up. According to the Vietnam National Real Estate Association, real estate transactions in Hanoi have doubled from last year, with around 1,200 sales recorded in February, while Ho Chi Minh City reported 1,100 deals, triple the figure from a year earlier.
According to MB Securities research, the local economy’s investment efficiency has risen with the incremental capital output ratio (ICRO) plunging to 5.1, a record low in the past five years. This metric is calculated by dividing annual investment by the annual increase in GDP, for which a lower ICOR value is preferred as it shows a country’s level of production efficiency.
Son told VIR that Vietnam’s economy officially bottomed out in 2012, with growth beginning in 2013, and positive GDP growth rates in the past two years. GDP, in particular, is estimated to grow 6-6.2% per annum, up from last year’s 5.98%.
Meanwhile, Ho Chi Minh City- based CEO Nguyen Hoai Thu at Vietnam Asset Management Ltd., a Vietnam-focused equity investment company domiciled in the British Virgin Islands, said that the local stocks are more competitive in terms of price than many of their peers in the region, marking Vietnam an attractive investment destination.
“We are seeing increasing interests in our Vietnam equity funds. In fact, since the start of 2015, we have continuously received new investment funds from Europe for a Vietnam fund that we launched in Luxemburg last year,” Thu told VIR, adding that investors with a long-term investment horizon were paying great attention to Vietnam’s economic growth outlook.
She also shared that foreign investors have expressed some degree of disappointment in the slow progress of the stock market development, especially the foreign ownership limit, the equality of the current initial public offerings and slow improvement in corporate governance. “Once these issues are properly addressed and resolved, we think that Vietnam’s stock market will be able to lure in more investment funds from not only existing investors but also new investors that have been sitting on the fence for a long time” added Thu.