(Bloomberg) — The world’s biggest stock market crisis is testing the resolve of the masses of Vietnamese investors.
A government crackdown on real estate companies, corruption probes and a credit crunch have sent the benchmark VN index down 36% this year – tied with Sri Lanka’s gauge as the world’s worst performer – led by banks and real estate companies. While some foreign investors see it as a buying opportunity, the crisis is penalizing Vietnamese who have entered the middle class since 2002.
“I’m very upset,” said Nguyen Bien, a 33-year-old lifeguard who said his dream of buying an apartment in Hanoi was fading after his initial investment of around $43,000 dwindled by around 40%. “The market kept going down and falling like it would never stop, so I decided to leave it for now.”
Retail traders account for around 85% of the benchmark exchange’s turnover. But sentiment has soured as authorities have stepped up scrutiny of the country’s property companies’ fundraising activities – and made significant and high-profile arrests – adding pressure to an economy struggling to get a grip on the climate. inflation and the growing debt burden.
As a result, an economy that the World Bank calls a “development success story” for transitioning from one of the world’s poorest nations to middle-income status in a single generation is under siege.
Contrary to recent trends, the benchmark VN index rose 2.6% by midday on Tuesday to its highest level since November 10.
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Ha Hai Dang, a 26-year-old broker who manages nearly 200 retail investor accounts for a Hanoi-based securities firm, said about 80 to 90 percent of his clients experience losses.
“One or two years ago, I didn’t even need to invite people to open trading accounts, but now the tables have turned,” Dang added. In October, 96,290 new trading accounts were opened by domestic retail investors, down for the fifth consecutive month after peaking at more than 476,000 in May, according to data from the Vietnam Securities Depository. This is the lowest number of new local investor accounts since February 2021.
A lot of Vietnamese who are new to the market sit on the sidelines or exit and liquidity dwindles. The average trading value on the Ho Chi Minh City Stock Exchange was $436 million per day this month through Nov. 21. That’s down from about $761 million a day this year, according to data compiled by Bloomberg.
The market decline has also triggered a sell-off cycle to meet margin lending requirements, compounding losses for those left behind, said Phung Trung Kien, founder of asset management firm Vietnam Holdings Inc.
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In a report released last week, Fitch Ratings called Vietnamese regulators’ efforts to “contain potential risks” in the real estate sector “modestly positive”. However, Fitch added, these measures “could lead to volatility in the financial system in the short term.”
While domestic investors are battered, some foreigners see a buying opportunity with the VN index trading at 8.3 times projected earnings – the lowest since at least December 2012.
Foreign investors have bought $315 million net worth of stocks so far this month after being net sellers in October and September. That puts it on track to be the biggest monthly buy since June 2020, according to data compiled by Bloomberg.
“Overall, I share a positive view of Vietnam’s future economic growth,” said Jiyun Chung, Ho Chi Minh City head of equities at Manulife IM Vietnam, who said his fund was buying. a good opportunity to accumulate good business at discounted prices.”
But that change hasn’t turned the market upside down, and with the government crackdown continuing, the country’s retail investors face a bleak outlook, said Dang, the Hanoi-based broker.
“The current expectations of investors now are to cut losses, not to get rich like in previous years,” he said.
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