Stock market outshines savings, real estate, gold, attracting domestic investors
The stock market in Vietnam is expected to gain popularity among domestic individual investors due to its accessibility, profit potential, and demographic and income level improvements.
According to VNDirect Securities Co, the stock market has become an attractive investment channel, outperforming other options such as savings deposits, real estate and gold.
The accessibility of the stock market compared to real estate is a key factor driving its popularity. Real estate prices in Vietnam have reached an average of VND2.67 billion (US$105,000), equivalent to 31 years of average annual per capita income, making the sector less accessible to the general public. In contrast, the stock market offers a more accessible entry point for investors, especially the younger generation.
Demographic factors also contribute to the growing interest in the stock market. With a significant portion of the population in the working age group (62.2%), individuals are looking to allocate their disposable income towards investments for future expenses and retirement. Additionally, the increase in disposable income among Vietnamese households, with nearly 60% earning over US$5,000 per year, has further fuelled the attractiveness of the stock market as an investment option, VNDirect said.
The stock market has outperformed the real estate sector over the past five years in terms of investment returns. With a compound annual growth rate of approximately 6.6% per year, the stock market has provided higher returns compared to real estate investments, which averaged 6.3% per year.
Dragon Capital experts also emphasise individual investors' dominance in the stock market, accounting for over 88 per cent of market participants. They argue that stocks remain a more attractive option compared to other investment channels, such as real estate, which have capital requirements and liquidity limitations.
The low-interest rate environment has further incentivised investors to consider the stock market. With savings deposit interest rates at banks around 4.7%, stocks offer a more appealing profit potential, with a 10.9% average return. This has led to an expectation of large capital flows entering the stock market.
Dragon Capital's projections indicate that the 80 largest listed companies in Vietnam could experience an average profit growth of 15-18% in 2024 compared to the previous year. This positive trend is attributed to favourable macro-economic conditions supporting these companies.
Furthermore, the corporate bond market has entered a stability phase following regulatory measures implemented in 2023. It is expected that these measures will unlock capital flows into the economy, reducing reliance on bank credit, said Dragon Capital.
The real estate market is showing signs of gradual recovery as the government's efforts to address challenges begin to yield results. Dragon Capital said that this recovery is expected to contribute to overall economic growth and boost the stock market.
Reasonable valuations also play a crucial role in attracting investors to the Vietnamese stock market. According to Dragon Capital's estimates, the projected price-to-earnings (P/E) ratio for the top 80 companies in 2024 is 10.6. This figure is significantly lower than P/E ratios in other ASEAN countries such as Thailand (16.0), Malaysia (14.1), Indonesia (13) and the Philippines (12.6).
Despite these positive factors, there are still challenges that need to be addressed. The continuous net selling by foreign investors reflects the impact of global economic uncertainties on investor sentiment and market stability. However, there is a slowdown in the net selling trend by foreign investors in the first quarter of 2024.
As the prospects of Vietnam's market upgrade to an emerging market become more apparent, it is anticipated that the foreign capital outflow will reverse. The analysis team at Dragon Capital suggests that this upgrade could attract a capital inflow of US$1.3-1.9 billion into the Vietnamese stock market.
In the context of the growing popularity of the stock market, Nguyen Minh Hoang, Head of Analysis at First Vietnam Securities Joint Stock Company (VFS), said that stocks are expected to remain an ideal investment in 2024, particularly as other investment channels show sluggishness.
"The prospect of a single stock yielding returns equivalent to a year-long deposit will continue to attract investment capital to the stock market in the coming period," he said.
Hoang's perspective aligns with the prevailing sentiment that stocks offer more attractive opportunities compared to traditional options. The stock market's accessibility, potential for higher returns, and improved demographic and income levels make it a preferred choice for domestic individual investors.
