It’s been an unexpected and very peculiar year in Vietnam. In 2022 the stock market of Asia’s fastest-growing, most competitive, and the least-indebted country faced a total crash. In a year of excellent earnings growth, the Vietnam stock market has plummeted 40%, while at the same time the ASEAN markets witnessed declines of only a few percent.
The reasoning for the slump in Vietnam is exceptional. The financial regulators decided to go ahead with the disciplinary measures this year when the investors already were on shaky ground due to global uncertainties. The administration’s measures are welcome and justified. These actions are targeted at a group of few, that includes a lawyer who is a well-known manipulator of the stocks of his companies for years and some real estate companies that have been guilty of shady land deals and unethical practices in the marketing of corporate bonds.
Unfortunately, these discipline measures have created collateral damage, and retail investors’ confidence in the bond market has dropped to the bottom. The corporate bond market liquidity has been frozen, and lots of stocks have faced forced sales while being used as collateral for the bonds. Uncertainty in the market also pushed Vietnamese businesses to convert sizeable amounts of the local currency for US dollars, causing a flash devaluation of the dong.
The Vietnamese authorities are well aware of all the negative side effects of the discipline measures, and last week a list of actions to restore confidence in the financial markets became public. There is new hope for the better, and there is a good reason to believe that Vietnam’s Index will be heading higher in the next 12 months.
On the other hand, the Vietnamese administration will continue to try to maintain law and order in the financial markets, and there will certainly be no amnesty for those who acted unethically. Let’s keep in mind also that the Vietnamese administration has very consistently for a couple of decades aligned its key policies towards pro-business. Vietnamese administrators are able to correct these self-inflicted wounds so that the problems do not reach Vietnam’s extensive business sectors, which are the basis of healthy growth.
The Vietnamese government is targeting +6.5 percent GDP growth for 2023. We believe that the likely near-term weakness of EU and US demand will take its toll on Asian exports to these markets. Our estimate for Vietnam’s GDP growth in 2023 is slightly lower, +5.5 percent.
Peta’s Blog / Petri Deryng
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