Vietnam stock market: Opportunities from the shift in capital flows

The Vietnam stock market has grown by more than 12% since the beginning of the year, with the VN30 group leading the way with a performance of 13.14%, while the mid-cap (VNMID) and small-cap (VNSML) groups have had much lower returns, focusing on individual stocks or industry groups with unique stories.

Specifically, banking companies have dominated the stock market in the first two months of the year, accounting for the majority of the VN30's weight. These equities have had strong price rises, with many reaching all-time highs, resulting in an overall market rally.

However, many individual investors focus on mid and small-cap companies during "ripe" market times, but experience little gain in their accounts and, in some cases, even lose money as a result.

Which groups offer opportunities?

In terms of valuation, especially the Price-to-Book (P/B) ratio, as compared to historical data, the large-cap group (VN30) is now undervalued, while the VNMID and VNSML groups are at their historical averages. This has been one of the key drivers of VN30 stock growth, given their low valuations and clearer signals of economic recovery.

As a result, in terms of value, the VN30 still has plenty of space to rebound over the long term. However, in the short term, possibilities for mid- and small-caps remain after the VN30's climb over the last two months.

In terms of capital flows, if the VN30 consistently attracted capital in the first two months of the year, as evidenced by sessions with increased market points and liquidity, liquidity for VN30 stocks increased sharply, while liquidity for the VNMID group reacted less, and the VNSML group attracted little capital during that period.

Since the beginning of March, the VNMID group has shown early signs of replacing VN30 in terms of capital attraction. However, this is only the beginning, and investors must wait to see if VNMID continues to lead capital flow in the future to validate the trend.

The mid-cap is worth watching in the short term after demonstrating the ability to attract money. However, investors should monitor money movement in this category, particularly following market declines, in order to reduce investment risks.

Aside from capital flow,  information on economic recovery supports stocks related to industrial output and import-export operations in the near future. The majority of equities associated with these operations are mid-cap in size. Other mid-cap groups, such as real estate and oil and gas, have also accumulated, creating greater potential for a breakthrough when capital flows reverse direction.

A suitable investment strategy is needed

The Vietnamese economy is expected to rebound quickly in 2024, and socioeconomic indicators from the first two months of the year indicate an increasingly obvious recovery picture. As a "barometer" of the economy, the stock market is projected to attract money and rise further. However, following two months of robust growth, investors should avoid fear of missing out (FOMO) and instead explore additional acquisitions during market dips.

The VNMID group is worth short-term attention after demonstrating the ability to acquire cash. This group's commercial performance is predicted to improve as manufacturing and export activity return. Investors should keep an eye on money flows into this category, particularly during market dips.

Furthermore, large-cap firms outside of banks, such as consumer goods and retail, which have not grown dramatically in the last two months, have numerous prospects to recruit capital owing to forecasts of strong business growth in 2024 based on a low base in 2023.