Vietnamese Stock Market Hits Record Trading Volume, VN Index Up 22%

On August 5, the Vietnamese stock market achieved a historic milestone with a total trading volume of nearly 86 trillion Vietnamese dong, equivalent to approximately 23.88 billion yuan. This record-breaking figure underscores the sustained bullish momentum in the Vietnamese market, which shows no signs of abating. The VN Index, which tracks the performance of the Ho Chi Minh Stock Exchange, reached an intraday high of 1585.98 points on Tuesday, marking a year-to-date increase of over 22%. This persistent bullish trend has significantly boosted the investment enthusiasm of Vietnamese investors, driven by the fear of missing out on potential gains.

The Vietnamese stock market has emerged as the hottest market in Southeast Asia this year. According to industry-compiled data, global funds are flowing back into the Vietnamese market, with net foreign inflows of 2.98 billion USD in July. This marks one of only two months in the past year with positive foreign inflows, highlighting the growing interest in the Vietnamese market. The recent trade agreement between the United States and Vietnam, which reduced tariffs on Vietnamese goods from 46% in April to 20%, is expected to continue attracting funds into the Vietnamese stock market. This agreement has further boosted market optimism and is seen as a catalyst for sustained growth.

The bullish sentiment among retail investors in Vietnam is particularly strong. A 39-year-old retail investor has stopped working as a freelance real estate agent to focus on stock trading, illustrating the growing interest in the stock market. The weakening of the US dollar, high valuations in the US stock market, and expectations that the FTSE Russell Index may upgrade Vietnam's market status are all contributing to the inflow of funds into the Vietnamese stock market. The positive sentiment among domestic retail investors is also paving the way for stronger market performance in the coming months.

The Vietnamese stock market is expected to see more inflows as the FTSE Russell Index is set to decide in September whether to upgrade Vietnam's stock market from a frontier market to a secondary emerging market. Vietnam has been on the watchlist for potential reclassification since September 2018 and has made significant progress in meeting global standards, which has been recognized by many investors. The recent trade agreement with the United States has further boosted market optimism, as it is seen as a positive development for the Vietnamese economy.

The number of new securities trading accounts in Vietnam has exceeded 970,000 in the first half of the year, bringing the total number of accounts to over 10 million. This is close to the regulatory target of 11 million accounts by 2030. The low deposit interest rates and rising costs of traditional investments such as gold are driving more Vietnamese people to invest in the stock market in search of higher returns. Retail investors now account for over 80% of the trading volume on the exchange, making them a dominant force in the market. Their high level of participation, which is twice that of Thailand and Indonesia, provides support for stocks when foreign funds withdraw but can also exacerbate volatility when market sentiment changes.

The enthusiasm among Vietnamese retail investors this year is evident. Slogans such as "Push the VN Index to 1800 points" and "MIGA" (Make Index Great Again) are widely circulated in retail investor chat groups. Even in casual conversations over coffee or in taxis, the topic often turns to the stock market, with some investors even wearing hats with the target of 1800 points for the VN Index. This level of enthusiasm is unprecedented and reflects the growing confidence in the Vietnamese stock market.

However, this bullish trend also raises concerns about potential risks. The record-breaking trading volume in 2021 led to a temporary halt in trading due to concerns about system overload. The high level of retail investor enthusiasm also raises concerns about the risk of a "stampede" if the market experiences a correction and investors rush to exit their positions. Data shows that the second quarter saw a record high of 10.9 billion USD in margin loans, which could amplify the risk of a sharp correction if market sentiment deteriorates. In January 2022, the VN Index fell by more than 20% within four months after hitting a record high, highlighting the potential risks associated with high levels of retail investor participation.

From a macroeconomic perspective, there is still uncertainty surrounding how the United States will classify goods transshipped through Vietnam and impose a 40% tariff. Most neighboring countries in the region have lower tariffs (19%) than Vietnam, and there is no guarantee that the FTSE upgrade will be realized this year. Despite these uncertainties, optimism about the country's prospects remains widespread. Comprehensive political reforms could further boost confidence, and the government's efforts to achieve economic growth of over 8% this year could support earnings growth.

The Vietnamese stock market is currently in a favorable position, with trade advantages, political stability, and an imminent market upgrade. This bull market still has room to run. Vietcap Securities expects the VN Index to reach 1800 points next year and surpass 2000 points by 2027. Although the index's 12-month forward price-to-earnings ratio is currently at 11.1 times, slightly above its five-year average, it remains cheaper than most other ASEAN stock indices. This suggests that the Vietnamese stock market still offers attractive investment opportunities despite the recent gains.