The stock market is experiencing significant momentum reminiscent of pre-pandemic levels. In August, the surge in banking stocks significantly contributed to the market’s remarkable performance, resulting in the VN-Index closing at 1,682.21 points. This represents an impressive increase of 11.96 percent compared to the close at the end of July. The banking sector itself saw an even more substantial rise, with its index soaring 18.75 percent to reach a record high of 1,086.41 points.
By August 29, the total market capitalisation of the banking sector surpassed $116 billion, marking a nearly 20 percent rise from the previous month. Trading activity within banking stocks has also seen a considerable uptick, averaging over 593 million shares exchanged per day, a 45 percent increase compared to July. The trading value hit an unprecedented level in over 18 years, averaging $631 million per session, a surge of 67 percent from the prior month.
As of August 25, banking stocks had achieved 241 record closing prices from 16 out of 27 listed tickers. This achievement not only reflects the market’s strength post-pandemic but also ranks as the second-largest rally in the history of banking stocks.
In a recent outlook report, Vietcombank Securities (VCBS) emphasized that the banking sector continues to be a critical driver for market profitability. Projections indicate that state-owned banks are expected to see profit growth around 12 percent, while dynamic private banks could experience gains of approximately 20 percent. Smaller banks might even see profit surges of up to 35 percent, buoyed by strong credit expansion and effective non-performing loan (NPL) management.
According to Tran Minh Hoang, director of Research and Analysis at VCBS, various factors contribute to the sustaining strength of the banking sector. He cites accelerating credit growth, recovering net interest margins, diminishing NPLs, and available valuation potential as key components. Hoang believes banks will be well-positioned to capitalize on declines in funding costs due to expected US Federal Reserve rate cuts and increased domestic public investment.
While many banks are enhancing their return on equity (ROE) and improving their NPL ratios, the current concentration of margin capital within the financial sector introduces a noteworthy risk. Nguyen The Minh, head of Research and Development for Retail Clients at Yuanta Securities Vietnam, highlighted concerns regarding potential market vulnerabilities stemming from the significant appreciation of banking stocks.
Minh noted that as securities stocks surged, numerous companies have sought capital, leading to increased dilution over the past three to four years. This trend could further pressure operating efficiency, particularly if capital inflows do not lead to immediate profit growth. Additionally, he observed a disparity in earnings growth between financial and non-financial sectors, wherein the latter has struggled while financials have thrived.
Investor sentiment appears heavily skewed towards financial stocks, fueling market polarization. Since the beginning of the year, the VN-Index has increased by over 30 percent, with nearly 60 percent of this growth attributed to financial stocks. Such reliance poses risks when investors shift their focus to undervalued stocks.
Despite these challenges, Do Bao Ngoc, deputy CEO of Vietnam Construction Securities, predicts an ongoing upward trend for the stock market leading up to the year’s end. He anticipates potential corrections in September or October as necessary adjustments to promote a sustainable upward trajectory. Ngoc projects that the VN-Index may continue to rise, ultimately targeting levels between 1,650 and 1,700 by the end of 2025.
