Alternative investment sources offer optimism

08:00 | 16/11/2020
The unprecedented public health challenges this year have led to the genesis of a new class of investment channels, paving the way for both individual and institutional investors to pour their cash into more diversified portfolios.
alternative investment sources offer optimism
VIR last week hosted a roundtable specifically to discuss the emerging landscape of investment in the new normal

The COVID-19 pandemic and related restrictions have forced people, especially young tech aficionados, to seek alternative sources of investment – partly explaining the unusual rallies made by the burgeoning appetite of inexperienced investors in the stock market.

Nguyen Tu Anh, director general of the Department of Economic Affairs at the Central Party’s Economic Commission, expressed his optimism of the current domestic outlook, as well as appealing investment channels.

Market boosters in the latter months of the year should remain thanks to a slower growth rate of infections and rebounding consumption in major export markets, Anh said. Moreover, easing monetary policy in central banks and accelerated public disbursement also pin new hopes on an economic recovery.

“In Vietnam, the State Bank of Vietnam has cut rates further as stimulus measures to help cash-strapped enterprises tide over the crisis. Hence, gold appears a much more attractive and lucrative safe haven,” Anh said at a VIR roundtable last week in Hanoi entitled “Calling the right shots in the new normal”.

According to economist Can Van Luc, the recent announcement by Pfizer and BioNTech of a potential vaccine has sparked hopes for a strong economic bounce-back, but in fact it could take much longer for both global and local economies to return to their pre-pandemic size.

“Thus, trading in speculative stocks with relatively low share prices has surged within recent months, fuelled by a huge influx of individuals using low-commission investing platforms and online brokerages,” Luc said. “Brokerage firms are also deepening their footprint to gain a bigger slice of the market through a variety of attractive offerings, such as free stock trading, so inexperienced investors can bypass typical transaction costs and build their portfolios free of charge.”

However, Luc noted that investors should be extra cautious when borrowing capital to invest, because this financial leverage can amplify both profits and losses.

Nguyen Thuy Duong, chairwoman of consultants EY Vietnam, highlighted that merger and acquisition (M&A) activities in Vietnam are still buoyant.

“Despite the economic meltdown, we’ve noticed that companies with a strong stomach and strong balance sheets are moving quickly to exploit opportunistic M&A hotspots, and Vietnam remains glittering with promising yields,” Duong told VIR.

“Especially, when three amended laws come into effect from February 1 next year, the M&A landscape will definitely pick up rapidly.”

After currencies had their quietest year on record in 2019, they are now on track for their highest year of volatility since 2017, cited an index managed by Deutsche Bank.

Economist Nguyen Tri Hieu believed that swings in currencies have breathed life back into the foreign-exchange market. Specifically, the heightening market volatility has laid the foundation for yield-seeking traders, since bigger moves of currencies can generate higher returns.

“At the click of a button, people could be trading with hundreds of currency pairings and thus, trading has never been easier to access. However, having a ‘beat the market’ mindset often causes people to trade too aggressively or go against trends, which is a sure recipe for disaster,” Hieu added.

Elsewhere Thai Viet Dung, representative at Exness, emphasised that while fixed-income investors could gain few profits because of ultra-low interest rates, they could edge into forex as an effective alternative to boost returns. The forex market is the most heavily traded financial market in the world, with a daily average turnover of around $5 trillion.

“While interest rates in money market accounts and deposit savings are at record lows due to central banks’ policies, investors could opt for trading forex and contract for difference (CFD). They should keep track of geopolitical and global developments as these could have a major impact on market trends and forex prices,” Dung explained. “Furthermore, we believe that gold will move on the virus-induced data. The outbreak has continued to cause a rise in gold prices.”

Moreover, CFDs are derivatives that enable traders to speculate on financial markets without taking ownership of the underlying asset, which is more cost-effective than other forms of investments.

“But investors must also ensure they fully understand the risks involved when trading financial derivatives. They should also choose an upright broker that is well regulated by respectable international financial regulatory bodies,” Dung added.

On the other hand, economist Hieu also highlighted that the renewed surge of global interest in cryptocurrencies recently is tied to Bitcoin’s potential as a hedge against inflation.

“With the lingering pandemic wreaking havoc on the global economy, governments and central banks have been forced to spend trillions to boost their economies while sapping the purchasing power of their currencies. The movement has revived fears that inflation will ramp up in the coming years, and that fear is winning some cryptocurrencies new converts,” Hieu noted.

In a broader context, the G20 (including finance ministers and central bank governors representing the European Union and 19 countries) announced that it is working with the International Monetary Fund, the World Bank, and the Bank for International Settlements to formalise the use of central bank digital currencies in banking systems.

Le Duc Khanh - Director of Investment Department VPS Securities JSC

alternative investment sources offer optimism

We have undergone the toughest time during the initial phases of the pandemic, casting pale prospects on Vietnam’s development. Nevertheless, the country’s GDP growth is projected to be about 2-2.5 per cent this year, before resurging to 6.7 per cent in 2021.

As for the stock market, investment opportunities pertain to essential production sectors and those directly beneficial from the government’s policies to fuel economic growth. Accordingly, supply chain shifts from overseas into Vietnam and the digitalisation of the local economy, together with urbanisation, will all require essential input factors such as electricity, agriculture, and fundamental building materials like cement and steel.

In addition, the targets of accelerating the local economy’s recovery process post-pandemic, and implementing multiple new projects on construction and infrastructure development, will entail bright growth prospects for specialised businesses, alongside casting upbeat impacts on national economic development in general.

In the third quarter this year, Ho Chi Minh City and Hanoi’s stock exchanges both witnessed impressive growth rates in scores and market liquidity. The former picked up 9.71 per cent, while the latter inched up 21.11 per cent compared to the previous quarter.

The Vietnamese stock market will continue its growth momentum in both scale and market value, with strong deployments of fresh products like short selling, intraday trading, or various derivatives. As such, the space for the development of Vietnam’s stock market remains immense.

Can Van Luc - Director BIDV Training School

alternative investment sources offer optimism

Some new investment trends have been emerging, like investing into safer assets such as gold, which has been raising sharply due to the fluctuations after the US elections.

According to the World Gold Council, total global demand on gold in the first nine months of 2020 was 1,630 tonnes, increasing by 63 per cent on-year. The gold reserves of central banks worldwide have also increased to 35,000 tonnes, by 1 per cent on-year, and 2.4 per cent compared to the end of 2018.

Furthermore, mergers and acquisitions will develop significantly as the pandemic leaves a lot of companies at the risk of bankruptcy or forces them to restructure. Some potential sectors for deals are automobile, retail, accommodation, and aviation, as a lot of airlines are succumbing to bankruptcy.

The next trend will occur in digital business. The pandemic has changed the way of business operations and fostered more online meetings, home offices, e-learning, e-commerce, and telemedicine.

Additionally, supply and value chains are being restructured. According to Garter, around 33 per cent of leading companies have relocated parts of their business out of China to other countries, including Vietnam.

Last but not least, healthcare and environmental protection are always a key priority for governments, businesses, and people. Some countries have paid hundreds of millions of dollars for preventive healthcare, vaccine production, medical equipment, and environmental protection campaigns.

Dr. Nguyen Tu Anh - Director general Economic Affairs Department Central Party’s Economic Commission

alternative investment sources offer optimism

The reopening of the economy from the second quarter brought a rebound in development in the third quarter which in both supply and demand. Despite modest growth levels so far, there are positive signs on the horizon across most sectors.

What firms urgently need at present is real capital support to help them maintain production and business, but until now, the state has yet to introduce financial support policies and measures that are strong enough to help firms not only overcome this challenging time, but also regain traction to avail of new development opportunities and forge ahead in a new economic cycle.

These upbeat signals, however, go parallel with the emergence of new dangers to the economy, requiring preparedness for a conscious response from state management agencies.

Current support policies are mainly focused on small firms and on mass scale, while rescue measures for big businesses are not yet in place. The case of Vietnam Airlines could serve as an example.

Nguyen Thuy Duong - Chairwoman EY Consulting Vietnam

alternative investment sources offer optimism

The digital economy is expected to be a high-potential sector for investment and will play an important role in the economic structure of every country. Of this, Vietnam’s government is interested in giving numerous directions to boost its development.

In addition to Resolution No.52-NQ/TW from last year on policies to actively participate in Industry 4.0, numerous strategies have already been issued on e-governments and smart cities, as well as decrees on investing in technologies, connecting and sharing databases, and organising national forums and conferences on digital tech.

According to Google and Temasek (Singapore), the scale of Vietnam’s digital economy reached $3 billion in 2015, $9 billion in 2018, and could top $30 billion in 2025. Another report from Australian organisation Data 61 notes that the GDP of Vietnam could be raised by $162 billion in the next 20 years if digital transformation succeeds.

This process requires an improvement in human resources, attached with developing science and technology as well as enhancing the knowledge of people in terms of the digital economy and supporting smaller enterprises and individuals to take part in related activities.

Similar to e-commerce platforms, which are leading every individual and business towards participating in digital economic activities, developing sharing economy platforms will also generate more benefits.

Thai Viet Dung - Representative, Exness

alternative investment sources offer optimism

COVID-19 has shifted from a health to a global economic crisis, putting most investors on the edge. Therefore, approaching safe channels is a good option for them.

As a result, gold has yet again become a safe shelter for new investment solutions. In comparison to the stock exchange, gold is supposed to be less risky.

Moreover, investors should consider pouring capital to other investment channels, specifically forex. To get boons from the channel, investors have to be able to foresee the up and down trends to perform any transaction.

Contract for difference (CFD) is also a good option for investors post-pandemic. The online market is able to materialise plenty of transactions within the largest financial market without the need to own assets to earn profits. With the platforms, investors could be able to approach many kinds of financial products and significantly reduce transaction fees and initial capital.

Through CFD, the forex market helps investors to buy and sell currencies at the same time, anticipate the ups and downs, and perform transactions through brokers.

However, it is necessary to carefully select genuine trading floors licensed by authorised financial authorities such as the FCA and the FSA, which are audited by leading companies. More importantly, investors should avoid programmes advertised with great promotions and profits.

Thu Le - Deputy director Indochina Capital Corporation

alternative investment sources offer optimism

Facing the economic depression fuelled by COVID-19, Vietnam is recovering. Nevertheless, the unemployment rate in the second quarter grew, while usable income over the first nine months of 2020 dropped by 5.5 per cent on-year. The food and beverages sector saw sales drop by 39 per cent on-year, while foreign direct investment capital fell by 18.9 per cent.

Nevertheless, GDP growth over the first nine months reached 2.12 per cent – the highest rate across the globe. Exporting during the timeline soared by 4.2 per cent.

In the coming time, investors should take advantage of reduced credit interest rates for their investment projects, from 32.18 per cent in 2003 to 7.94 per cent in 2020 for the private sector. Moreover, investors should assess profits from leasing rates against money-saving rates. Most importantly, focusing on the domestic market is a key for real estate investors.

Nguyen Tri Hieu - Senior financial expert

alternative investment sources offer optimism

When modest-sized businesses and trading households are thirsty for capital to serve development and expansion needs, banks become cautious in lending. The State Bank of Vietnam (SBV) also cautions banks not to offer subprime loans. The demand for supplementing working capital from small- and medium-sized businesses is now enormous. Firms need capital injections to maintain their liquidity, including the ability to continue wage payments, rents, distributors, and tax departments, among others.

The government needs to present a plan on establishing loan syndication. Along with this, all banks but one must take part in this syndication, with respective engagement levels equalling 3-3.5 per cent of each bank’s total outstanding balance. This syndication’s top target is not for profit, but to support firms in dealing with the pandemic’s implications. The SBV supports such syndication, but one commercial bank needs to act as the manager. A specific credit council must be established to support approving firms’ loaning records. As this is a government policy, engagement of local lenders and foreign banks’ branches operating in Vietnam should be made compulsory, using syndication.

An important tool to reduce banks’ risks is a credit guarantee mechanism. There needs to be a national credit guarantee fund whose charter capital must be sufficient enough to secure all banks taking part in the loan syndication. The syndication and national credit guarantee fund would become an efficient financial solution to solve the capital conundrum for firms, particularly smaller ones plagued by the current health and economic crisis.

Khong Phan Duc - General director VietinBank Capital

alternative investment sources offer optimism

The post-pandemic period will see the rise of the sharing economy – an inevitable trend as a global economic depression is set to last.

The sharing economy initially took place at the turn of the century when human resources and purchasing power fell significantly as the global population continued to enlarge. This, and the rise of the internet, resulted in equal sharing of all kinds of assets, resources, products, and services. Since then, plenty of economy-sharing businesses have appeared such as Airbnb and Uber, among others. In fact the total market value of Airbnb and Uber is equal to the 38th-largest economy in the world.

In Vietnam, the sharing economy has an immense potential for an evolution where digital platforms have attempted to dominate. According to a survey published by Nielsen, about 76 per cent of Vietnamese people are ready to use sharing-economy items and services, higher than the average global rate of 66 per cent.

Now, business platforms have replaced companies to manipulate activities. Businesses used to be a great initiative that once resolved demand for earning and living. However, with the correct platforms, organisations and individuals with diversity of scale will jointly create new value.

Nguyen Thi Thu Hang - Sales director 379 Urban Development and Construction Co., Ltd.

alternative investment sources offer optimism

Investment channels with high returns will be more risky, so real estate and stock trading will be options for investors with rich capital and high confidence because these two channels are indeed quite potentially risky. But if I compare the two, real estate will be more stable because the proportion in total wealth always accounts for over 40 per cent of the material wealth of nations.

Real estate is always a good channel to protect assets and bring high profitability.The stock market will meanwhile be more elusive because there are many factors that make it volatile, including the increase and decrease of real estate value, even if those fluctuations are just rumours.

The pandemic is still a threat to investors’ psychology and money, while some segments such as condotels are facing a lot of pressure due to legal and transparency issues. Investors must budget their energies and invest in projects suitable to their capabilities so that they can actively respond to market fluctuations.

It is also necessary to understand legal issues because many investors have been deceived in real estate scams thanks to a lack of framework.

Ngo Trung Linh - CEO VietUnion

alternative investment sources offer optimism

Customers have limited purchasing options because of the coronavirus outbreak’s effect and this leads them to try to experience electronic payment instead of cash.

To ensure growth, merchants are accelerating new forms of e-payment. Many of Payoo’s merchants used to be only interested in direct business. Now they are forced to promote online solutions. Their digital transformation is faster, and they have now gained specific achievements.

Though there is an increase in the number of online payment transactions, we believe that the market needs more effort from all participants such as banks, fintech, and merchants that could help change user’s habits. With the goal to provide a one-stop payment service, Payoo has built the most modern electronic payment platform supporting both online and offline channels.

By Huong Luu

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