Hanoi (VNS/VNA) - The domestic stock market has seen an impressive performance of mid- and small-cap stocks, outperforming the market average.

However, experts warn investors to assess valuation levels against the growth potential of these companies for informed decisions.

Post-Lunar New Year, there has been a notable improvement in market liquidity, with funds spreading across various sectors, leading to an overall increase in stock prices.

The VN-Index has risen for five consecutive weeks, surpassing the significant 1,300-point threshold, a level it struggled to breach throughout 2024.

Average trading value since early February has reached approximately 17.5 trillion VND (684.5 million USD) per session, marking a 36% increase compared to January. In the most recent week, liquidity exceeded 20 trillion VND per session.

However, when compared to the same period last year, February's liquidity was down by 25%, and year-to-date figures show a 28% decrease.

During this period, mid- and small-cap stocks, particularly in sectors like mining, building materials, construction, rubber and chemicals, have experienced significant price increases.

The market surpassing the 1,300-point threshold, driven by mid- and small-cap stocks, is seen as a positive signal, especially amid global market volatility.

In February, the top ten best-performing stocks were dominated by the mining sector (Yen Bai Industry Mineral JSC, Fecon Mining, Becamex) and financial services sector (Icapital Investment JSC, APG Securities, Ocean Group JSC).

The recent surge in mineral stocks can largely be attributed to escalating trade tensions among major economies, said Lam Gia Khang, Head of Market Strategy at VietinBank Securities.

With China tightening export controls on key raw materials, particularly strategic metals and minerals, supply chain disruptions have driven investors toward these stocks.

However, after a strong rally, investors should be cautious. Despite the price surge, profits after tax in this sector have remained low in recent years, making valuations less attractive and raising the risk of short-term corrections.

Meanwhile, some non-life insurance stocks have been gaining momentum, partly due to a recovery in insurance demand after the crisis of confidence at the end of 2022.

Vietnam’s insurance market still has substantial growth potential. By the end of 2024, the insurance penetration rate (measured by premiums as a percentage of GDP) is expected to range from 2.3% to 2.8%, which is still lower than the ASEAN average of 3.35%, Asia’s 5.37% and the global average of 6.3%.

However, with many insurance stocks rising sharply and even reaching new highs, there is a risk of a market correction, especially as companies face pressure to cover claims from Typhoon Yagi, which struck in early September 2024.

Cautious approach

The stock market is expected to see strong divergence in 2025, creating opportunities for portfolio restructuring and new investments.

According to Khang, investors should focus on mid- and small-cap stocks in sectors benefiting from Government and Central bank policies aimed at achieving at least 8% GDP growth, such as civil construction, infrastructure and public investment.

Stocks like Tradico, which maintained over 110 billion VND in annual net profit (2022–2024) despite industry-wide losses, and PV Coating, which is set to gain from the Block B - O Mon project, are worth considering, he added.

The project could generate over 3.14 billion VND in revenue and 471 billion VND in profit after tax, a significant jump from previous years.

However, Le Duc Khanh, Head of Research at VPS Securities, notes that the recent rally in mid- and small-cap stocks is largely a recovery after prior declines.

For sustained market growth, blue-chip stocks must regain momentum. He expects capital to shift back to these larger stocks.

Bui Van Huy, Head of Investment Research at FIDT, agrees, arguing that large-cap stocks with stable price consolidation offer a more reasonable investment strategy than overheated smaller stocks.

The 2025 market will revolve around economic growth, public investment and market upgrades. Sectors with strong potential include banking, construction, building materials, retail and consumer goods.

✅ Huy expects clearer opportunities in late 2025, as neither global nor Vietnamese markets have undergone significant corrections despite macroeconomic uncertainties. Recommended long-term picks include banking, steel and construction, attractive options if prices adjust, he said./.