Vietnam's stock market plunges despite strong corporate earnings

Analysts said the market is being weighed down by macroeconomic pressures and investor sentiment, although several factors could support a recovery in the coming period.

The VN-Index fell nearly 57 points on July 20 and 21 to around 1,730 points.

Vu Ngoc Linh, director of research and market analysis at VinaCapital, said that excluding Vingroup stocks, the VN-Index had fallen about five percent in the first half of the year.

Market liquidity had also halved to around US$500 million per session, from about $1 billion at the beginning of the year.

The decline stands in contrast to the earnings outlook of listed companies.

VinaCapital estimates that profits of companies listed on the Ho Chi Minh Stock Exchange (HoSE) rose by about 37 percent in the first quarter and by another 15-20 percent year on year in the second quarter.

Dinh Duc Minh, senior investment director and fund manager at VinaCapital, attributed the disconnect to three headwinds weighing on the market.

First, domestic interest rates have started to rise again as credit growth outpaces deposit growth across the banking system, making bank deposits more attractive and reducing the appeal of equities.

Second, geopolitical tensions in the Middle East have pushed up oil prices, raising concerns that inflation could return.

Third, strong net selling by foreign investors has added to the pressure as global capital shifts toward markets benefiting from the AI and semiconductor booms, such as the U.S., Taiwan, South Korea, and Japan.

Luong Duy Phuoc, director of analysis at Kafi Securities, also said the market is reflecting expectations for the macroeconomic environment more than companies' short-term business results.

According to Phuoc, persistently high oil prices, the U.S. Federal Reserve's cautious monetary policy, and rising domestic interest rates have made investors more hesitant to put money into riskier assets.

With a price-to-earnings (P/E) ratio of around 11, the market is not yet attractive enough to attract strong new inflows, Phuoc said. In previous market cycles, capital tended to flow back more strongly when the P/E ratio fell to around 9.5-10.

Valuations, corporate fundamentals offer some support

Despite the continued market correction, several experts believe the outlook is not entirely negative.

Minh said the paradox of fundamentally strong companies with growing profits but increasingly lower stock prices could not persist indefinitely.

In the long term, stock prices will eventually reflect companies' intrinsic value, while most unfavorable macroeconomic factors have gradually been priced into stock valuations.

Tran Hoang Son, market strategy director at VPBankS Securities, said heavy selling in recent sessions could help the market find a short-term equilibrium.

Although the VN-Index has lost several key bullish signals and has yet to confirm a bottom, easing selling pressure could pave the way for technical rebounds as investor sentiment stabilizes, Son said.

Hoang Nam, a market and strategy analyst at Shinhan Securities Vietnam, said Vietnam's macroeconomic fundamentals remain positive, with inflation under control and FDI continuing to grow.

The market's short-term performance will depend on three key factors: oil price trends and U.S. inflation, enterprises' second-quarter earnings, and the emergence of new market-leading stocks.

If oil prices cool, pressure on foreign capital flows eases, and expectations that Vietnam will be upgraded by FTSE Russell in September remain intact, investor sentiment could improve.

What should investors do?

On investment strategy, experts advised investors to avoid panic selling during sharp market downturns.

For medium- and long-term investors, they recommended considering gradual investing in leading companies when valuations become more attractive.

By sector, banking stocks are widely viewed by experts as potential market leaders if the market recovers, thanks to high liquidity and positive earnings prospects.

Steel, energy, securities, and companies that report strong second-quarter results and have solid fundamentals are also expected to attract capital as market sentiment gradually stabilizes.