How is the current 1,100 points of VN-Index different from 17 years ago?

After reaching new peaks many times, VN-Index is at 1,100 points, a level set in 2007, but the current valuation is considered "much more attractive than before".

VN-Index will close 2023 at nearly 1,130 points, up more than 12% year-on-year. After a sharp correction, the index has been trading around 1,100 points since November. This is the price range the VN-Index has reached three times, most recently in January 2021, before that in January 2018 and further back in January 2007 - 17 years ago.

However, according to experts, it is incorrect to rely on this data to infer that the stock market has not brought any profits to investors after nearly two decades. "The nature of the 1,100 threshold of the VN-Index this time is different," said Mr. Vo Nguyen Khoa Tuan - Senior Expert of Dragon Capital Securities, at a recent investor meeting.

He analyzed that 1,100 points in 2007 was the peak of the "bubble" market when P/E (market price compared to earnings per share) reached 50 times, P/B (market price compared to book value) also reached 8.5 times. Meanwhile, the current 1,100 point area is the "wave foot" for the new growth cycle of the stock market, with current P/E and P/E valuations at only 13 and 1.6 times.

"Valuations are now much cheaper than in 2007 and the upside opportunity (growth prospects) for the market in the next 5 years is very good," Dragon Capital experts emphasized.

In fact, the 1,100-point mark was first recorded in 2007. At that time, the market was excited by the IPO wave of many state-owned enterprises such as Bao Viet, Dam Phu My, Vietcombank... In addition, rapid economic growth, Vietnam's accession to the World Trade Organization (WTO) and loose monetary policy also stimulated the market.

From the 300-point mark in early 2006, this index only needed more than a year to multiply its score by 4 times. There were sessions when more than half of the stocks on the HoSE floor increased to the ceiling, many codes were priced at hundreds of thousands of VND - equal to the basic salary at that time. The stock "fever" spread everywhere, many people encouraged each other to invest when "just buying is profitable".

The market quickly "collapsed" in 2008 with a decrease of nearly 70%. By March 2009, the VN-Index had fallen deep to the 230-point area. But that was also the starting point for a very strong price increase cycle nearly a decade later. During that period, the improvement rate was up to tens of percent. The number of years the market increased was much greater than the number of years it declined.

Even during the times when VN-Index regained the 1,100 point mark in early 2018 and early 2021, the current market valuation is still cheaper than the previous two periods. According to SGI Capital's calculations, the current P/E is 13 times and P/B is about 1.6 times - both at the cheapest levels in history.

In addition to the difference in valuation, this analysis group also believes that the current 1,100-point mark will become a "support level" for the long-term uptrend, instead of being a challenging number for the market many times over the past 17 years. SGI Capital made the above assessment based on the Government's determination to bring Vietnam into the group of emerging markets in the next two years, liquidity will increase along with the VN-Index and the overall corporate profit growth in 2024 will be around 15-20%.

With attractive valuations and low interest rates, many securities companies believe that this is the right time to accumulate assets through stocks. MB Securities (MBS) said that the market will record a lot of supportive information in the coming time when the KRX system (a new information technology system for HoSE, allowing transactions on the same day) is put into operation, creating a foundation for many new products to be deployed, thereby shortening the path to upgrading Vietnam to an emerging market. Therefore, this analysis group believes that reasonable market valuation is an opportunity to accumulate stocks with a long-term vision.

Dragon Capital Securities (VDSC) forecasts that for most of the year, cash flow from domestic individual investors will be the main participants. This can cause the market to fluctuate quickly and strongly, both up and down. According to VDSC, short waves and strong corrections are opportunities to accumulate stocks. Investors can better optimize the opportunities that appear during the year by trading cautiously, only disbursing when their favorite stocks fall to the buying range that suits their taste and maintaining a reasonable ratio between stocks and cash, avoiding excessive leverage.

Siddhartha