After slumping 26 percent from its April record, the nation’s VN Index has seen its volatility surge to levels not witnessed in more than eight years. The gauge, which was Asia Pacific’s best performer just months ago, has now erased all of its 2018 gains, sinking more than any other regional benchmark from its peak.

Sentiment quickly reversed as Federal Reserve tightening triggered a surge in the U.S. dollar -- and a plunge in Vietnam’s dong. Foreigners began to flee the Southeast Asian nation’s shares, and outflows only worsened with growing concern over the consequences of trade frictions between the U.S. and China.

“Volatility is here to stay, it’s normal at this stage,” said Bernard Lapointe, the head of research at Viet Dragon Securities JSC in Ho Chi Minh City. “Buyers and sellers are arguing where we are going, taking profit. People have been burned in equities and will not come back that soon.”

After six straight years of gains surpassing 6 percent, the VN Index entered bear territory in May. While it staged a 12 percent rebound in early June, the advance didn’t last, and the volatility increased. It was little changed on Thursday, trading at its lowest level since November, while most regional benchmarks rose. Since April’s high, Vietnam’s stock market has lost $25.4 billion in value as international investors spent three-fourths of their days withdrawing money from it in the past three months.

The plunge took the gauge’s valuation to 14.3 times estimated earnings for the next year, the lowest since September and closer to its three-year average multiple of 14.6, data compiled by Bloomberg show. For Bill Stoops, chief investment officer of Dragon Capital Group Ltd., shares are looking cheap with earnings growth poised to hold up at about 26 percent this year, he said.

“Fundamentals are still very positive,” he said from Ho Chi Minh City. “The macro economy seems very stable: low inflation, high foreign reserves while FDI is still pouring in,” he said, referring to foreigner’s direct investments, which represent about a fifth of Vietnam’s gross domestic product.

Economists forecast a 6.8 percent expansion in 2018 and 6.7 percent in 2019, according to the median projection compiled by Bloomberg. The nation has grown at an annual rate of 5 percent or more every single year but one since at least 1990.

But that doesn’t shelter the market from violent twists and turns. Viet Dragon’s Lapointe expects the turmoil to continue.

“Markets should get used to a new, hostile normal,” he said. “It is a bit like inflation: when its shows up, it’s hard to get rid of it. Volatility will stay higher than 12 months ago due various uncertainties.”

By Nguyen Kieu Giang - Bloomberg - July 12, 2018