Worrisome concerns about stock market bubble

Saigon Investment
At the National Assembly last week, there were worrisome arguments about the structure of the budget revenue based on the stock market bubble and the real estate sector. 
Worrisome concerns about stock market bubble ảnh 1 Illustrative photo
Last week also, the stock market had transactions at a record value of over VND52,000 billion, showing more worrisome concerns about the current state of the economy.
Market outlook

Although the economy in the first nine months of 2021 increased only by 1.42% over the same period, the third quarter decreased by 6.17% compared to the same period last year. However, business results of listed companies were completely opposite. According to preliminary statistics from business result reports of companies listed on the Vietnam stock market, net profit in the third quarter of 2021 grew by 17.8% over the same period in the whole market, up 54.6% over the same period for business results in the first nine months of the year. If we group enterprises by their size, this growth rate is 21.3% and 44.5% for larger enterprises, while small-sized enterprises are more disadvantaged at -24.0% and 24.7%. The reason is that the market creates these new divisions.

For banks, business results are still what the market cares about. Business results of banks in the third quarter of 2021 decreased over the same period when credit growth decreased, but on an average in the first nine months of the year, 17 listed banks saw a 42.6% increase in pre-tax profit compared to the same period last year thanks to credit growth of 7.42%, while at the same time last year, credit growth was only 4.99%. Therefore, the stock price index of this industry maintained a high level compared to the beginning of the year but decreased in the third quarter of 2021. Many estimate that the business results of the banking industry in 2021 will keep the ROE rate of 20% to 28%.

In general, business results of enterprises in the whole market have improved significantly, due to improved gross profit margin from 14% in the first quarter of 2020 to 21.6% in the third quarter of 2021, higher than the 17% average over the last five years. The debt-to-equity ratio also decreased and was lower than the five-year average, and the interest expense also decreased for the whole market. These are the results for expectations of the Vietnam stock market in the first nine months of 2021.

In fact, with the replacement of a new trading system for HOSE in early July 2021, trading activities across the market increased in both the number of securities and the transfer value. Last week, the stock market also witnessed a record trading value of over VND52,000 bn per session, much higher than the previous record of VND31,000 bn per session at the beginning of June. Now, the market still maintained the transaction level of VND40,000 to VND45,000 bn per session. Thus, the whole year average reached VND24,000 bn per session, 2.2 times higher than the average level in 2020. If this pace is maintained, the stock market will show its role in the economy.

Notably, the net selling of foreign investors was more than VND10,000 bn in October and more than VND50,000 bn in the first ten months of 2021. This further aggravates the role of domestic investors. This is also a push for the market to grow, but there is also a great risk when the profits of enterprises do not grow as expected by the end of 2021.

Risk unavoidable

In September and October 2021, the largest cash flow focused on real estate stocks, averaging VND6,000 bn per session. These were followed by banking stocks averaging VND4,000 bn per session, steel at nearly VND3,000 bn per session, and securities at VND2,500 bn per session. Looking at the industry groups attracting cash flow from the market also shows that the market is facing certain potential risks and is highly speculative.

If we take the price of steel in the world market or in China, we can easily recognize the fluctuations in the business results of this industry in Vietnam today. Steel Rebar price on the Chinese market has increased from 3,965 CNY/T one year ago, to a peak of 5,970 CNY/T on 11 May 2021, equivalent to a price increase of 50.7%. This price continues to fluctuate in the range of 5,970 to 4,645 CNY/T in the third quarter of 2021, and now this price has increased by just over 12.5% compared to the price one year ago.

Currently, many securities companies have published reports assessing market potential and making investment recommendations and prospects. Although, when comparing the prospect of the Vietnam stock market with the world market, there are some comments about the unattractiveness of Vietnam's stock market compared to some countries. For example, foreign investment flows are net selling in Vietnam, withdrawing from markets of South Korea and India, while pouring into some other markets such as Japan, Thailand, Taiwan (China), and Indonesia. Market reports of securities companies themselves have comments about risks in the global economy, such as inflation and monetary policy of the Fed and some central banks. Risks from global thermochemical policies led to forecasts of high oil prices, deep declines in coal prices, and even a slowing of the world economic recovery.

However, despite general risks, valuation results and investment recommendations of securities companies all give optimistic forecasts with valuation results higher than the current market price level. It is also worth mentioning that for the same stock code, there are many securities companies offering investment recommendations to buy and hold at a valuation higher than 20% to 25% of the market price, while the investment analysis reports do not have a recommendation to sell to investors.

Dr. Le Dat Chi, Faculty of Finance, UEH

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