Nonetheless, with the VN Index showing a 36% increase in 2021, along with a bright economic outlook, Vietnamese securities are set to prosper in 2022.
Individual investors
Vietnam's economy in 2022 is supported by many positive factors, as well as an expected recovery in many areas, with GDP growth prospects of 7% to 7.5%, maybe even upto 7.5%. Real estate and residential properties are on the top preferred fields for investors, and will continue to attract strong cash flow this year. Therefore, following the surge of individual investors in 2021 with the number of trading accounts increasing by 60%, I expect more and more individual investors to join the stock market in the coming years. If Vietnam follows the same trajectory as Taiwan, the number of investors on the stock market will likely triple within the next ten years.
Currently, individual investors account for about 90% of the daily trading volume on the stock market. However, as per my observation, the majority seems to only focus on short-term investments. Therefore, although Vietnam's stock market has increased by 36%, there has been a rather high differentiation between sectors and stocks in the last year.
In 2022, I believe there will be individual investors who will continue to be successful on the stock market, but there will also be many cases of losses if they are not equipped with sufficient investment and financial knowledge, and an understanding of development trends of various sectors in the economy. On the other hand, active fund management companies with professional and flexible investment methods can analyse the set of industries and stocks and predict the profit growth of each company that has achieved outstanding profitability.
For listed companies, profit growth is expected to reach 26% this year. This is the reason why VinaCapital is still defining its investment strategy in Vietnam, targeting the sectors that will benefit from the economic recovery, including non-essential consumer goods, finance, and real estate.
Future prospects
Concerning areas that will benefit in 2022, I see good prospects in banking which accounts for 30% of the VN Index; real estate, which accounts for 23%; and non-essential consumer goods, which account for about 3%. For the banking industry, profits could increase by about 30% because of an estimated 14% credit growth, and also because it was the least affected by Covid-19 pandemic, and asset quality issues will have little effect on profits. All banks, especially state-owned commercial banks, will not have to continue to sacrifice profit to support the economy. For instance, they will not continue to lend at preferential interest rates this year.
Specifically, the profitability of banks will be supported by an improved loan structure with many borrowers being individuals or SMEs; and lower capital costs, thanks to more funding from low-cost current savings accounts. In addition, the Government's debt rescheduling measures will support banks to offset loan losses due to the Covid-19 pandemic for more than three years, helping to improve bank profits this year. However, although it is estimated that more than one-third of the loss has been made provision, when lending to banks that may have suffered due to the impact of Covid-19, most loans are mortgaged by real estate, and real estate prices have continuously increased in the last two years.
Although optimistic about the overall outlook of the industry, the profit growth of each bank will have a big difference in the credit growth of each unit, because the State Bank of Vietnam will allocate the limit based on asset quality, which is different among banks. Accordingly, the average credit growth may reach 14% this year.
With regards to the real estate industry, I expect profits of companies in this field to increase by about 25% in 2022, as sales and orders of new apartments are expected to nearly double, after falling more than 50 percent in 2021 due to the impact of social distancing measures to prevent the Covid-19 pandemic from spreading, as well as several related legal and regulatory issues, which are now being revised.
However, profits for companies with recurring revenue, such as real estate agents and owners of shopping malls, will also increase this year. In the context that bank savings interest rates remain low, investors will continue to choose real estate channels to pour money. As the price of apartments in Hanoi and Ho Chi Minh City had increased by about 10% in 2021, the long standing desire to buy houses for living or investment in the past, will lead to an increase in the number of pre-orders for new projects, and real estate prices will continue to increase in 2022.
An industry that also directly benefits from domestic economic recovery is the consumer sector, as Vietnamese people will increase their spending quite sharply in 2022. I think the pandemic has boosted the shopping trend through several popular modern retail channels and e-commerce platforms. However, as incomes were severely affected by the Covid-19 pandemic, some people have switched to buying cheaper products. Because of this reason, it will be difficult for sales of some non-essential items or high-end segments to recover fully to pre-pandemic levels this year.
To summarise, individual investors should choose financial products, such as actively managed open-end funds from professional fund management companies to diversify their portfolio, so as to control risks and achieve higher profits.
