Investing.com – In looking back on 2021, we can see the tug of war between fighting the pandemic and maintaining an open economy as a global game. How countries responded to COVID-19 and how they struck a balance between the pandemic and openness became an important factor in the divergence of global stock indices.
Major global stock indices finished up overall. In Asia, Vietnam, India, and Taiwan were the three best performing stock markets last year, with Vietnam’s VN 30 up 43% for the year, India’s Nifty 50 up 24%, India’s BSE Sensex 30 up 22%, and the Taiwan Weighted Index up 24%.
Therefore, this article will focus on the reasons for the bright performance of the three major stock markets in Vietnam, India and Taiwan in 2021 and whether investors can still invest profitably in these markets in 2022.
Vietnam: Retail investors’ influx pushes stocks higher, expects strong economic rebound in 2022
Vietnam’s performance on pandemic prevention and control was a global model. But as we entered 2021, the outbreak in Vietnam increased dramatically, with the Delta mutant strain beginning to wreak havoc in May and the capital city of Ho Chi Minh City undergoing several social lockdowns. Surprisingly, however, the Vietnamese stock market was not greatly affected, with the VN30 index rising all the way to a new all-time high on Nov. 26.
Just like the meme stock boom in the U.S. that emerged in January and left a large mark on 2021, the contribution of domestic retail investors is a big part of what made the Vietnamese stock market so hot. According to local media reports, data from the Vietnam Securities Depository showed that in November 2021, the number of new accounts opened in the Vietnamese stock market exceeded 220,000, up 70% from a year earlier, setting a new single-month high. By the end of November, the overall total number of securities account openings in Vietnam reached 4.03 million, already accounting for 4.09% of the country’s total population. By December, retail investors had opened 1.3 million accounts in Vietnam, three times the number in 2020.
Interestingly, the Ho Chi Minh City Stock Exchange, the largest stock exchange in Vietnam, saw its system break down on June 1, forcing it to close for half a day due to excessive trading volume caused by the influx of retail investors.
As a barometer of the national economy, the rapid rise of the stock market in the long run is certainly inseparable from the support of the economy. Some market participants believe that although Vietnam’s GDP fell by 6.17% year-on-year in the third quarter of this year, the largest quarterly decline on record, the fundamentals of Vietnam’s economy are positive in the long run, so the long-term performance of Vietnam’s stock market should also be positive.
The Vietnamese government, as well as local institutions, are optimistic about a strong rebound in Vietnam’s economy this year. Vina Capital, a local Vietnamese investment firm, expects Vietnam’s GDP growth to soar from 2.5% in 2021 to more than 7% in 2022, while the Vietnamese government set a 2022 GDP growth target of 6-6.5% year-on-year in October.
Currently, Vietnam is following the path of the “East Asian model,” a government-led, export-led economic development model that has been practiced by East Asian countries in the past. During the pandemic, Vietnam became an integral part of the global supply chain reconstruction, and analysts believe that Vietnam’s demographics, position in the Asian production chain and attractive valuations provide upside for stocks.
It is important to be aware of the fact that as Vietnam’s stock market has been rising, foreign investors have been selling stocks. Bloomberg data shows that a record $2.7 billion worth of stock was sold in Vietnam’s stock market in 2021.
India: Ample stock market liquidity, focus on large infrastructure plans
Similar to Vietnam, the coronavirus pandemic has posed a serious challenge to the Indian economy.
In order to reverse the economic downturn, India injected liquidity into the market by maintaining low interest rates, and the Reserve Bank of India kept the key repo rate at a record low of 4% throughout 2021. In terms of funding, there was no shortage of money in the Indian stock market, and it was expected that the stock market would move higher throughout the year.
It is also worth noting for investors that at India’s Independence Day celebrations on August 15, 2021, Prime Minister Narendra Modi announced that India would launch a INR100 trillion infrastructure plan in order to adapt to and recover from the pandemic and its economic impact. Market participants observed that the majority of the infrastructure plan is focused on transportation construction, with half of the overall funds invested in railroads and roads. Therefore, our next conclusion is that in addition to the economy getting a boost, the Indian stock market will also benefit a lot from the infrastructure plan, especially the infrastructure sector stocks.
Nomura Securities also mentioned the Indian stock market in its 2022 stock market outlook. The bank said it continues to reiterate its “neutral” rating on Indian equities for 2022, saying that the strong performance of Indian equities in 2021 has attracted its attention. Nomura believes that the strong earnings of Indian companies in 2022 can support the high price-to-earnings ratio of Indian stocks.
Taiwan: Winners in the Semiconductor Crisis
In May, Taiwan stocks plunged more than 8% at one point, the biggest drop ever, due to panic over the Delta strain of the Covid-19 coronavirus, but they bottomed out as pandemic fears dissipated.
Looking at the data, since 2019, Taiwan stocks have gained more than 20% for three consecutive years, with a three-year cumulative gain of more than 90%. Unlike Vietnam and India, Taiwan’s surge in 2021 is mainly due to the global semiconductor crisis.
The Taiwan Weighted Index, a benchmark index for Taiwan stocks, is compiled by weighting stocks by market capitalization, with the larger the market capitalization, the greater the impact on the index. The top three constituents of the Taiwan Weighted Index are Taiwan Semiconductor Manufacturing TW:2330) (NYSE:TSM), MediaTek Inc (TW:2454), and Hon Hai Precision Industry Co Ltd (TW:2317), which account for one-third of the overall market capitalization of the broad market. Therefore, these three stocks have a big impact on the performance of the Taiwan Weighted Index. In 2021, TSMC, MediaTek, and Hon Hai shares rose 16%, 59%, and 13%, respectively.
By the numbers, TSMC and MediaTek have been on a fierce roll. TSMC’s third quarter revenue rose 22.6% year-over-year to $14.88 billion, and third quarter net profit rose 20% year-over-year to $5.614 billion, with single-quarter revenue and net profit both hitting record highs. MediaTek has topped the global smartphone system on chip market share for four consecutive quarter, since the second half of 2020, with an impressive 43% share in the second quarter of this year, a jump of 17 percentage points year-on-year.
Even as the semiconductor industry continues to boom, the semiconductor crisis remains a major challenge, but Taiwan’s stock market is still worth investing in this year. HSBC Global Private Bank, in its outlook report for 2022 released late in the year, continued to be optimistic that Taiwan will continue to benefit from the growth of the global semiconductor industry. The bank’s North Asia investment director He Weihua pointed out that some semiconductor companies increased prices in 2021 and the benefits will be reflected in 2022. In addition, the semiconductor industry has a wide range of end markets, including big data, 5G, AI, medical technology, financial technology, meta-universe and other areas, which all have room for growth, therefore, there is reason to stay bullish on semiconductors and Taiwan stocks.
U.S. wealth management firm Prudential advised investors to buy stocks affected by the pandemic, such as textiles, travel, and tourism. At the same time, the agency also mentioned that Taiwan stocks may drop in anticipation of the U.S. Fed’s interest rate hikes, though historically they recover to hit new highs after the hikes are made.
Summary: Next year’s outlook is promising, but risks are increasing
Although the outlook for 2022 for the three major Asian stock markets mentioned above is positive, there is no denying that risks are also increasing in the market.
On the one hand, the global pandemic has yet to see its end due to the continued emergence of new coronavirus mutant strains. In the medium to long term, the pandemic will be the “sword of Damocles” hanging over the market, and global stock markets, including Asian stocks, will be affected by this uncertainty.
On the other hand, global central banks have already started the process of tightening monetary policy, and liquidity is one of the potential risks to the stock market this year. In December, the Federal Reserve hinted at at least three interest rate hikes in 2022, the Bank of England raised interest rates by 15 basis points, and the Norwegian central bank announced an increase in interest rates. For India, Vietnam, Taiwan and other emerging markets, international “hot money” may exit, which would cause stock market returns to decline.
An economist at the American Enterprise Institute pointed out in an interview with Xinhua that expectations of rising interest rates in the U.S. this year have led to a gradual reduction in international capital flows to emerging markets, and if the Fed raises interest rates faster than the market expects, international capital will accelerate the flow back to the U.S. from emerging markets, and emerging economies will face serious challenges.
Historically, in 2013, when the Federal Reserve began to scale back its asset purchase program it triggered a “taper tantrum” where Asian emerging market economies experienced capital outflows and currency devaluations. It remains to be seen if history will repeat in 2022.
Read also: Will 2022 Be the Year of Value Investing?
See our full 2022 outlook series here.