Vietnam Stock Market in Short-Term Overheating Zone... Attractive Small and Mid-Cap Stocks and Bank Shares

KB Securities Report

Significant Increase in Individual Stock Investments
Investment Advice for Small and Mid-Cap Stocks, Banks, and Materials Stocks Expected to Have Strong Demand

[Asia Economy Reporter Minji Lee] As the Vietnamese stock market approaches historic highs, opinions have emerged that it has entered a short-term overheating zone. In the securities industry, it is expected that small and mid-cap stocks favored by strong local investor demand, as well as large-cap stocks in the banking and materials sectors, will be attractive if additional investments continue.

According to the financial investment industry on the 17th, the Vietnamese stock market (VN Index) has risen about 8% since the beginning of this month. The VN Index closed higher every day except one this month, ending at 1194.20 points on the 15th. This means it is about 10 points away from the previous high of 1200 (April 9, 2018) based on the closing price. According to KB Securities, it took 60 trading days for the VN Index to recover from 900 points in September last year to 1000 points. It took only 25 trading days to surpass 1100 points, and then rose about 100 points within 10 trading days.

In Vietnam, the inflow of funds into the stock market driven by the low interest rate environment is propelling the index rise. Last year, the average monthly number of new accounts opened by local individual investors was 33,000, compared to only 20,000 in 2017 and 2019. Especially in the second half of the year, account openings were concentrated; from January to August, the average monthly new accounts were about 27,000, whereas from September to December, the monthly average surged to 43,000. In December alone, 63,000 accounts were opened. Since the second half of last year, loan demand has recovered, leading to an inflow of liquidity into the stock market. Conversely, foreign investors net sold a total of $830 million last year, and the monthly average number of new accounts opened by foreigners decreased by about 27% compared to the previous year.

KB Securities expects that although the VN Index has entered a short-term overheating zone, the rising corporate earnings outlook will ease price burdens. From December 25 last year to January 12 this year, the securities industry's target price estimates for the top 50 VN Index stocks increased by an average of 0.8%. Among these, the consensus target price for the top 30 stocks by market capitalization rose by an average of 1.6%, showing strength centered on large-cap stocks. By sector, earnings expectations increased rapidly in materials (3.6%), financials (2.8%), and consumer goods (1.9%) in that order.

Lee Chang-min, a researcher at KB Securities, said, “The neutral investment opinion despite price burdens is based on favorable earnings forecasts,” adding, “This year, the State Bank of Vietnam is focusing on curbing inflation and economic recovery, and this policy stance will gradually ease price burdens.”

However, he advised expanding investments in sectors with high earnings growth expectations and where local investors’ investments can be concentrated, rather than simply following the VN Index further. Large-cap stocks in the banking and materials sectors, which benefit from policies by the Vietnamese government and central bank, and small and mid-cap stocks with favorable local investor demand were considered attractive for parallel investment. Researcher Lee Chang-min explained, “At this point, rather than aggressively increasing exposure, strategic investment will yield better results,” and added, “Currently, the VN Index should move away from past investment strategies that followed foreign investor demand, making investment in small and mid-cap stocks favored by individual investors attractive.”

This content was produced with the assistance of AI translation services.