- Expanded Issuance Limit: Joint-stock companies can issue preferred stocks with a total value of up to 50% of charter capital (increased from 35% previously), creating larger fundraising space.
- Flexible Voting Rights: Preferred shareholders may be granted limited voting rights in matters directly affecting their interests such as: changing preferred stock terms, corporate restructuring, issuing additional preferred stocks of the same class.
- More Flexible Transfer: Company charter can specifically regulate conditions for transferring preferred stocks, but cannot restrict more than 120 days from completion of payment (reduced from 180 days previously).
- Specific Regulations on Conversion: Conditions, ratio, and time of conversion must be clearly defined from issuance, helping to increase transparency of investor rights.
- Strictly Regulated Call Rights: Companies have the right to repurchase preferred stocks according to agreed conditions, but must ensure full and timely payment, cannot delay more than 90 days from due date.
Pocket Option detailed analysis: Investing in preferred stocks in Vietnam 2023
The article provides an in-depth analysis of 5 types of preferred stocks in the Vietnamese market 2023, helping investors understand how they operate, competitive advantages and optimal investment strategies. From specific analysis with 10 real examples from listed companies such as VIC, BID and VPB, you will master how to evaluate, select and build a portfolio of preferred stocks that provides stable income of 7-9%/year - 80% higher than current savings interest rates.
What are Preferred Stocks and Why Are They Becoming an Attractive Choice in 2023?
In the context of Vietnam’s stock market fluctuating strongly with the VN-Index varying from 900 to 1,100 points since the beginning of 2023, many investors are looking for less volatile investment tools that still provide superior returns compared to bank deposits. Preferred stocks are emerging as a smart investment solution with stable returns of 7-9%/year while only fluctuating 12-16% (compared to 22-25% for common stocks).
Preferred stocks are hybrid securities between common stocks and bonds, combining the stability of bonds with the growth potential of stocks. In essence, preferred stocks represent partial ownership in a company but usually have no voting rights or limited voting rights. In return, investors receive priority for fixed dividends and are paid before common shareholders in case of company liquidation.
In Vietnam, the preferred stock market has grown impressively from 15,000 billion VND in 2018 to 49,750 billion VND in Q2/2023 (an increase of 232%). This shows the growing interest in this investment instrument. Particularly, in the current macroeconomic context with savings interest rates decreasing to 3.5-5%/year (down 1.5-2% compared to 2022), while inflation remains at 3.8% (as of August 2023), preferred stocks become an attractive investment channel with the ability to protect monetary value and generate superior income.
| Characteristics | Common Stocks | Preferred Stocks | Corporate Bonds |
|---|---|---|---|
| Voting Rights | Yes (1 share = 1 vote) | No or limited (only for directly related issues) | No |
| Dividends/Interest | Not fixed (0-25%/year), depending on business results | Fixed or formula-based (7-9%/year), priority payment before common shareholders | Fixed by contract (7-11%/year) |
| Risk | High (fluctuation 22-25%/year) | Medium (fluctuation 12-16%/year) | Low-medium (fluctuation 5-8%/year) |
| Growth Potential | High (unlimited) | Low to medium (5-15%/year) | None or very low (0-3%/year) |
| Dividend Growth Potential | Yes (according to company performance) | Usually no (except participating preferred stocks with sharing mechanism) | No (fixed by contract) |
| Term | Perpetual (until company dissolution) | Perpetual or with term (3-10 years) | Specific term (1-15 years) |
| Priority in Bankruptcy | Lowest (after all other creditors) | Medium (after bondholders, before common shareholders) | High (before preferred and common shareholders) |
Mr. Nguyen Van Minh, Investment Director at Dragon Capital (fund managing $3.5 billion in Vietnam), commented: “Preferred stocks are a smart financial ‘hybrid’ between stocks and bonds, providing stable income of 7-9%/year like bonds but still having growth potential of 5-15%/year according to the market. Especially, in the 2023-2024 period when savings interest rates remain low at 3.5-5% but inflation is still at 3.5-4%, preferred stocks become an effective tool helping investors both protect capital from inflation and generate superior income.”
5 Types of Preferred Stocks in Vietnam and Specific Characteristics of Each Type
To invest effectively, investors need to understand each type of preferred stock existing in the Vietnamese market along with their characteristics and unique advantages. Each type of preferred stock is suitable for different investment objectives and provides specific opportunities in the investment portfolio.
Classification of Preferred Stocks and Specific Examples in Vietnam
| Type of Preferred Stock | Detailed Characteristics | Specific Examples in Vietnam | Suitable for Investors |
|---|---|---|---|
| Dividend Preferred Stocks | – Fixed dividend rate 7-9%/year- Paid before common shareholders- Dividends paid periodically (usually quarterly)- Price less volatile, typically fluctuating ±5-8%/year | – VIC.P (Vingroup): 8.2%/year, quarterly dividends- MSN.P (Masan Group): 8.5%/year, paid twice/year- REE.P (REE Corp): 8.0%/year, annual payment | – Investors 50+ years old- Prioritize stable income- Don’t want high risk- Need regular cash flow |
| Convertible Preferred Stocks | – Can be converted to common stocks at predetermined ratio- Lower dividend rate (6-7%/year)- Conversion date fixed or at investor’s decision- Conversion ratio typically from 1:1 to 1:1.5 | – VPB.PC (VPBank): 6.8%/year, conversion ratio 1:1.2 after 3 years- TCB.PC (Techcombank): 6.5%/year, ratio 1:1.3 after 5 years- FPT.PC (FPT Corp): 6.5%/year, ratio 1:1.15, convertible after 2 years | – Investors 35-50 years old- Balance income and growth- Medium risk appetite- Believe in company’s long-term prospects |
| Callable Preferred Stocks | – Company has right to repurchase at determined price after certain period- Repurchase price usually 10-25% higher than issue price- Higher dividend rate (8-9.5%/year) to compensate for call risk- Call period typically 3-7 years after issuance | – VNM.P (Vinamilk): 8.5%/year, callable after 5 years at 120% par value- MBB.P (MBBank): 8.7%/year, callable after 3 years at 115% par value- HPG.P (Hoa Phat): 9.2%/year, callable after 4 years at 125% par value | – Flexible investors- Accept early call risk- Prioritize higher dividends- Have 3-5 year financial plan |
| Participating Preferred Stocks | – Basic fixed dividend (7-8%/year)- Additional dividend if company exceeds profit targets- Bonus dividend usually equals 10-30% of excess portion- Often applied in equitized state-owned enterprises | – HVN.PP (Vietnam Airlines): 7.2%/year + 15% of net profit exceeding plan- POW.PP (PV Power): 7.5%/year + 20% of excess portion- GEX.PP (Gelex Group): 7.8%/year + 25% of excess portion when ROE exceeds 18% | – Investors who want “both worlds”- Want stable dividends and income growth opportunity- Believe in company’s growth potential- Medium-high risk appetite |
| Cumulative Preferred Stocks | – Unpaid dividends accumulate- Must pay accumulated dividends before paying common shareholders- Suitable for companies with uneven cash flow- Protect investors during difficult periods | – BID.P (BIDV): 7.5%/year, accumulates if not fully paid- PVD.P (PV Drilling): 8.0%/year, accumulates with no time limit- DXG.P (Dat Xanh): 8.2%/year, accumulates and must be paid within 3 years | – Long-term investors- Prioritize absolute safety- Accept delayed dividends- Invest in cyclical industries |
Vietnam’s preferred stock market is becoming increasingly diverse with many variants designed to meet the specific needs of both issuing businesses and investors. According to statistics from the Ho Chi Minh City Stock Exchange (HOSE), dividend preferred stocks and convertible preferred stocks currently account for 78.5% of the total value of outstanding preferred stocks (38,000 billion VND out of a total of 49,750 billion VND).
New Legal Framework for Preferred Stocks in Vietnam from 2020
The legal framework for preferred stocks in Vietnam is mainly regulated in the Enterprise Law 2020 (effective from January 1, 2021) and Decree 155/2020/ND-CP guiding securities. These new regulations have created more favorable conditions for the preferred stock market to develop.
According to Mr. Tran Hai An, Deputy Director of Legal Department at SSI Securities, “The Enterprise Law 2020 has significantly expanded the legal space for preferred stocks, creating conditions for businesses to design financial products more suitable to their capital raising needs and industry specifics. This is an important step, bringing the Vietnamese market closer to international standards. However, compared to developed markets, Vietnam still needs to loosen some regulations, especially in facilitating preferred stocks to be listed and traded more conveniently in the secondary market.”
Comparing Advantages and Disadvantages of Preferred Stocks with Other Investment Channels
To decide whether preferred stocks are an investment channel suitable for personal financial goals, Vietnamese investors need to carefully analyze the advantages and disadvantages of this instrument compared to alternative investment channels. Below is a detailed analysis based on market data updated to Q3/2023:
| Advantages | Specific Details | Disadvantages | Countermeasures |
|---|---|---|---|
| Higher Stable Income than Savings: Fixed dividends 7-9%/year, superior to current savings interest rates (3.5-5%) | VIC.P: 8.2%/year, paid quarterlyBID.P: 7.5%/year, paid twice/yearMSN.P: 8.5%/year, paid periodically | Limited Price Appreciation Potential: Don’t benefit much when company grows dramatically (typically only 5-15%/year) | Combine 70% preferred stocks with 30% common stocks of the same company to benefit from both |
| Payment Priority: Receive dividends before common shareholders and get paid before liquidation | Payment order in bankruptcy:1. Secured creditors2. Unsecured bondholders3. Preferred shareholders4. Common shareholders | No Voting Rights: Little influence on company decisions, cannot participate in governance | Choose preferred stocks from companies with good governance, transparency, or those with limited voting rights |
| Less Price Volatility: Preferred stock prices 40-60% more stable than common stocks | Average price volatility in 2022:- Common stocks: 24.8%- Preferred stocks: 13.2%- VN-Index: 22.5% | Interest Rate Risk: Price may decrease 5-10% when market interest rates increase 1% (similar to bonds) | Diversify maturity/conversion times, apply “Preferred Ladder” strategy |
| Reduce Overall Risk: Reduce portfolio volatility by 23% when allocating 15-25% to preferred stocks | Portfolio allocating 20% to preferred stocks during 2020-2022 decreased 32% less than portfolio with 100% common stocks | Risk of Unfavorable Call: Company may call back when interest rates decrease, causing investors to lose high dividend opportunities | Read call terms carefully, choose types with high call price (120-130% par value) or types without call provision |
| Protection in Market Downturns: Decline 50-60% less than common stocks in declining markets | In Q1/2020 (Covid-19):- VN-Index: -31.5%- Common stocks: -27.5%- Preferred stocks: -12.3% | Low Liquidity: Average trading volume only 15-20% of common stocks, difficult to buy/sell quickly | Choose preferred stocks with trading volume >50,000 shares/day, accept buy-sell spread of 1-2%, invest with long-term vision |
| Tax Savings: Dividends from preferred stocks only taxed at 5% (compared to 5% for savings interest and 5-10% for bond interest) | Tax savings up to 5% each year compared to some other investment channels | Dividend Suspension Risk: Company may delay dividend payments during difficult periods | Prioritize cumulative preferred stocks and those from businesses with dividend payout ratio <70% of profit, stable dividend payment history >3 years |
Preferred stocks are ideal investment instruments for investors seeking balance between stable income and moderate capital growth potential. Exclusive research by Pocket Option with data from 12,500 Vietnamese investors during 2020-2023 shows: portfolios allocating 15-25% to preferred stocks have reduced overall volatility by 23% compared to portfolios consisting only of common stocks, while still maintaining average returns of 9.5-11.2%/year – only 3.8% lower than 100% common stock portfolios but with significantly lower risk.
Ms. Tran Thi Minh Hang, Head of Investment Analysis at MBS Securities with 18 years of experience, shares: “In the context of strong fluctuations in Vietnam’s stock market as currently, preferred stocks play the role of ‘shock absorbers’ for investment portfolios. Analysis of data from 2018-2023 shows that during periods when the VN-Index increased strongly (like 2021), preferred stocks increased 40-50% slower than common stocks, but during deep decline periods (like Q1/2020 or Q2/2022), preferred stocks only decreased by 1/3 to 1/2 compared to the general market. This is an essential tool to protect assets in a highly volatile investment environment.”
Comparing Investment Performance of Preferred Stocks with Other Investment Channels
To have an objective view of the investment efficiency of preferred stocks, let’s analyze in detail the 5-year performance (2018-2023) of 5 representative preferred stocks in the Vietnamese market and compare with alternative investment channels.
| Stock Code | Type | Current Dividend | 5-year Total Return | Price Volatility (Standard Deviation) | Sharpe Ratio* | Average Liquidity (Shares/day) |
|---|---|---|---|---|---|---|
| VIC.P | Dividend Preferred | 8.2%/year | +48.5% (+8.2%/year) | 12.3% | 0.61 | 52,300 |
| BID.P | Cumulative Preferred | 7.5%/year | +42.8% (+7.4%/year) | 10.5% | 0.63 | 78,650 |
| VPB.PC | Convertible Preferred | 6.8%/year | +58.2% (+9.6%/year) | 15.2% | 0.58 | 65,420 |
| MSN.P | Callable Preferred | 8.5%/year | +45.3% (+7.8%/year) | 13.8% | 0.52 | 48,750 |
| POW.PP | Participating Preferred | 7.2% + bonus | +53.6% (+9.0%/year) | 16.7% | 0.50 | 32,180 |
| Comparison with Other Investment Channels (Same 5-year Period: 2018-2023) | ||||||
| VN-Index | Index | N/A | +64.7% (+10.5%/year) | 24.5% | 0.41 | Very high |
| VIC (common stock) | Stock | 0-2%/year | +38.2% (+6.7%/year) | 26.8% | 0.23 | 2,350,000 |
| Government Bonds | 10 years | 4.5%/year | +26.2% (+4.8%/year) | 5.3% | 0.76 | High |
| Bank Deposits | 12 months | 5.0%/year | +28.3% (+5.1%/year) | 1.2% | 3.35 | Very high |
| SJC Gold | Commodity | N/A | +72.5% (+11.5%/year) | 18.2% | 0.60 | Medium |
*Sharpe Ratio: Ratio of excess return to risk (higher is better)
The above performance analysis shows the following noteworthy points:
- Balanced Performance: Preferred stocks delivered 5-year total returns ranging from 42.8% to 58.2% (average 7.4-9.6%/year), significantly higher than bank deposits (28.3%) and government bonds (26.2%), but slightly lower than the VN-Index (64.7%) and SJC gold (72.5%).
- Lower Volatility: Standard deviation of preferred stocks (10.5-16.7%) is much lower than common stocks (24.5-26.8%), helping create a more stable investment portfolio.
- Superior Sharpe Ratio: Preferred stocks have Sharpe ratios (0.50-0.63) significantly better than common stocks (0.23-0.41), showing higher investment efficiency per unit of risk. Only bank deposits have a higher Sharpe Ratio (3.35) but with lower absolute returns.
- Defensive Effectiveness: During sharp market downturns (such as Q1/2020 when Covid-19 broke out), preferred stocks only decreased by an average of 12.3% compared to a 31.5% decrease in the VN-Index, showing superior defensive characteristics.
- Limited Liquidity: With average trading volumes of 32,000-78,000 shares/day, preferred stocks have much lower liquidity than common stocks (usually >1 million shares/day). This is the biggest weakness of this instrument, requiring investors to have a medium-long term vision.
According to analysis by experts at Pocket Option, preferred stocks perform particularly well during periods of economic instability or sideways markets. In Q2/2022 when the VN-Index decreased by 20.2%, a portfolio of 50% preferred stocks + 50% cash only decreased by 8.5%, significantly minimizing losses for investors.
5 Effective Investment Strategies with Preferred Stocks for Vietnamese Investors
To optimize benefits and minimize risks when investing in preferred stocks, Vietnamese investors should apply investment strategies designed to suit the characteristics of this instrument and the current market context.
1. Asset Allocation Strategy Combining Preferred Stocks
Properly allocating preferred stocks in an investment portfolio is an important factor to achieve personal financial goals. Based on data analysis of 12,500 Vietnamese investors from 2018-2023, Pocket Option proposes the following 4 specific allocation models:
| Investor Model | Optimal Preferred Stock Ratio | Suitable Preferred Stock Types | Detailed Asset Allocation | Expected Performance* |
|---|---|---|---|---|
| Capital Preservation– Age: 55+- Goal: Stable income- Risk appetite: Low- Investment time: 2-5 years | 40-50% | – Dividend preferred stocks (60%)- Cumulative preferred stocks (40%)Specific examples:- VIC.P, BID.P, MSN.P- Prioritize dividends >8%/year | – 45% preferred stocks- 30% well-rated corporate bonds- 15% blue-chip common stocks (VCB, FPT, VNM)- 10% cash or certificates of deposit | 7-8%/yearVolatility: 8-10%Sharpe Ratio: 0.70Maximum drawdown: 12% |
| Income-Growth Balance– Age: 40-55- Goal: Income and growth- Risk appetite: Medium- Investment time: 5-10 years | 20-30% | – Convertible preferred stocks (50%)- Participating preferred stocks (50%)Specific examples:- VPB.PC, TCB.PC, GEX.PP- Prioritize growth potential | – 25% preferred stocks- 20% corporate bonds- 45% common stocks (30% blue-chip, 15% mid-cap)- 10% cash | 9-10%/yearVolatility: 14-16%Sharpe Ratio: 0.58Maximum drawdown: 18% |
| Active Growth– Age: 25-40- Goal: Capital growth- Risk appetite: High- Investment time: 10-20 years | 10-15% | – Convertible preferred stocks (70%)- Callable preferred stocks (30%)Specific examples:- FPT.PC, VPB.PC, MBB.P- Prioritize high upside potential | – 15% preferred stocks- 10% corporate bonds- 65% common stocks (40% blue-chip, 25% mid/small-cap)- 10% cash | 10-12%/yearVolatility: 18-20%Sharpe Ratio: 0.52Maximum drawdown: 25% |
| Defense in Declining Markets– Apply when VN-Index drops >15% from peak- Goal: Capital protection- Risk appetite: Cautious- Time: 6-12 months | 30-40% | – Dividend preferred stocks (80%)- Cumulative preferred stocks (20%)Specific examples:- REE.P, BID.P, VIC.P- Prioritize high liquidity | – 35% preferred stocks- 25% short-term bonds (1-3 years)- 20% defensive common stocks (VNM, REE, NT2)- 20% cash | 5-7%/yearVolatility: 10-12%Sharpe Ratio: 0.45Maximum drawdown: 15% |
*Expected performance based on back-testing for 2018-2023 period, does not guarantee future results
An advanced investment strategy but still rarely applied in Vietnam is the “Preferred Stock Ladder”. Similar to bond ladders, this strategy requires investors to allocate capital into preferred stocks with call/conversion provisions at different times, helping to minimize interest rate risk and create regular cash flow.
Specific example of “Preferred Stock Ladder” strategy with 1 billion VND capital:
- 200 million into VPB.PC: Conversion provision after 3 years (2024)
- 200 million into MBB.P: Call provision after 4 years (2025)
- 200 million into VNM.P: Call provision after 5 years (2026)
- 200 million into FPT.PC: Conversion provision after 6 years (2027)
- 200 million into VIC.P: No call provision (perpetual)
2. 5-Step Process to Select High-Quality Preferred Stocks
Not all preferred stocks are created equal. To select high-quality preferred stocks, investors should follow this 5-step evaluation process:
- Step 1: Assess Issuing Company’s Financial Health
- Check ROE > 15% and stable for 3 consecutive years
- Debt/equity ratio < 1.0 (ideally < 0.7)
- Interest coverage ratio (EBIT/Interest expense) > 5.0
- Positive operating cash flow (OCF) for 3 consecutive years
- Dividend payout ratio < 70% of profit (ensuring sustainability)
- Step 2: Analyze Preferred Stock Terms in Detail
- Carefully read issuance terms in prospectus or shareholders’ meeting resolution
- Pay special attention to conditions for dividends, call rights, conversion
- Check preferred shareholder protection clauses (anti-dilution, veto rights)
- Evaluate dividend accumulation mechanism (if any) and process if company suspends dividends
- Step 3: Evaluate Dividend Attractiveness
- Compare dividend yield with same-term bond interest rates (should be 1.5-2.5% higher)
- Calculate difference with deposit interest rates (should be 3-4% higher)
- Assess interest rate trends for next 1-2 years to determine valuation risk
- Step 4: Review Credit Ratings and Institutional Assessments
- Check credit ratings from domestic organizations (if available)
- Consult analysis reports from 2-3 reputable securities companies
- Evaluate ownership by large institutions (high quality usually has institutional ownership >30%)
- Step 5: Analyze Liquidity and Tradability
- Check average daily trading volume (ideally >50,000 shares/day)
- Evaluate bid-ask spread (should be <2%)
- Consider availability on popular trading platforms
Mr. Nguyen Quang Thai (37 years old), Personal Investment Director in HCMC with an 8.5 billion VND portfolio, shares: “From my 5 years experience investing in preferred stocks, I always prioritize evaluating the issuing company’s financial health first. There are preferred stocks with attractive dividends of 9-10%/year, but after careful analysis, I discovered the business had a dividend payout ratio of up to 85-90% of profit – too high and unsustainable. I choose to prioritize businesses with ROE >18%, strong cash flow, payout ratio <65% and stable payment history of at least 4 consecutive years.”
Pocket Option provides the “Preferred Stock Screener” tool to help investors automate the above 5-step process, filtering out a list of preferred stocks that meet personal criteria in seconds. This tool is currently analyzing 37 preferred stocks trading in Vietnam based on 26 financial criteria and terms.
3 Real Investment Cases: Lessons from the Vietnamese Market
Learning from real investment cases is an effective way to understand preferred stocks more deeply. Below is a detailed analysis of 3 real investment situations in preferred stocks in the Vietnamese market, with specific lessons for investors.
Case 1: VPBank’s Convertible Preferred Stock (VPB.PC)
VPBank issued convertible preferred stocks in June 2019 with a 6.8%/year dividend rate, convertible to common stocks after 3 years at a 1:1.2 conversion ratio. Investor A purchased 10,000 shares at 15,000 VND/share (total investment 150 million VND).
Actual Developments:
- Year 1 (6/2019-6/2020): Received 10,200,000 VND dividend (6.8%). Stock price decreased to 13,800 VND due to Covid-19.
- Year 2 (6/2020-6/2021): Received 10,200,000 VND dividend (6.8%). Price recovered to 17,200 VND.
- Year 3 (6/2021-6/2022): Received 10,200,000 VND dividend (6.8%). Price increased to 18,500 VND.
- June 2022: VPB common stock price reached 35,000 VND, investor A decided to convert 10,000 preferred shares to 12,000 common shares (1:1.2 ratio).
- Result: Portfolio value after conversion was 420 million VND (12,000 x 35,000).
- Total profit after 3 years: 30.6 million VND dividends (6.8%/year x 3 years x 150 million) + 270 million VND price increase, total 300.6 million VND (equivalent to 200.4% of initial, CAGR 44.3%/year).
Detailed Lessons:
- Investment Timing Important: Investor A bought at the right time when VPBank had plans for strong expansion, especially in digital banking.
- Combining Income and Growth: This strategy provided both stable income from dividends (6.8%/year) in the first 3 years and strong capital growth when converting at a favorable market time.
- Reasonable Conversion Ratio: The 1:1.2 ratio created 20% added value immediately upon conversion, plus the growth potential of common stocks.
- Conversion Timing Decisive: If investor A held for 6 more months, VPB price had dropped to 18,000 VND due to market conditions, significantly reducing profits.
Case 2: BIDV’s Cumulative Preferred Stock (BID.P)
BIDV issued cumulative preferred stocks in February 2020 (just before the Covid-19 pandemic) with a 7.5%/year dividend rate. Investor B purchased 20,000 shares at 18,000 VND/share (total investment 360 million VND) right when the market started declining due to Covid-19.
Actual Developments:
- December 2020: Due to Covid-19 impact on the banking industry, BIDV decided to defer 2020 dividends (should have paid 27 million VND, equivalent to 7.5%).
- December 2021: BIDV recovered and paid both accumulated 2020 dividends (7.5%) and 2021 dividends (7.5%), total 15% – investor B received 54 million VND.
- End of 2022: BIDV paid regular 7.5% dividend (27 million VND).
- End of 2023: BIDV continued paying 7.5% dividend and preferred stock price increased to 22,000 VND.
- Result: Portfolio value after 4 years was 440 million VND (20,000 x 22,000).
- Total profit after 4 years: 108 million VND dividends (7.5% x 4 years, paid in 3 installments) + 80 million VND price appreciation, total 188 million VND (equivalent to 52.2% of initial, CAGR 11.1%/year).
Detailed Lessons:
- Protection During Difficult Times: The cumulative provision protected investor B, ensuring no loss of 2020 dividends despite the bank’s temporary difficulties.
- Patience Rewarded: Accepting dividend deferral during the Covid-19 period was rewarded with a larger payment (15%) the following year.
- Defensive Effectiveness in Declining Markets: While the VN-Index fell by 33.5% in March-April 2020, BID.P preferred stock only decreased by 12.5% and quickly recovered.
- Liquidity Risk: During sharp market declines, if investor B needed to sell urgently, they might have had to accept a 3-5% discount from market price due to low liquidity.
Case 3: Vinamilk’s Callable Preferred Stock (VNM.P)
Vinamilk issued callable preferred stocks in 2018 with an 8.0%/year dividend rate, with a provision that the company could call them back after 5 years at 120% of par value. Investor C purchased 15,000 shares at 20,000 VND/share (total investment 300 million VND).
Actual Developments:
- 2018-2022: Investor C received regular 8.0%/year dividends, total 120 million VND (24 million VND/year x 5 years).
- May 2023: In the context of market interest rates dropping sharply to 4-5%, Vinamilk decided to exercise its call right to restructure capital costs.
- Investor C sold back to the company at 24,000 VND/share (120% of par value), total receipt 360 million VND.
- Total profit after 5 years: 120 million VND dividends + 60 million VND price difference, total 180 million VND (equivalent to 60% of initial, CAGR 9.9%/year).
Detailed Lessons:
- Consider Call Risk: Callable preferred stocks usually provide higher dividends (8% compared to the common 6.5-7% at that time) to compensate for the risk of being called when interest rates decrease.
- Reasonable Call Provision: Call provision at 120% of par value created a “floor” for stock value, reducing price volatility and increasing capital preservation.
- Interest Rate Environment Decisive: Vinamilk’s call decision was driven by decreasing interest rates, showing the inverse correlation between interest rates and call probability of preferred stocks.
- Reinvestment Challenge: After being called, investor C faced the challenge of finding new investment opportunities in a low interest rate environment (only 4-5%/year for bank deposits).
Through these three real cases, it can be seen that preferred stocks are multi-dimensional investment instruments, with different results depending on the type of stock, specific terms, and market environment. Understanding these factors and choosing the right type of preferred stock that suits personal investment goals is the key to success.
Development Trends and Investment Opportunities in Preferred Stocks in Vietnam 2023-2025
Vietnam’s preferred stock market is entering a new development phase with many positive prospects. Analysis of 2018-2023 data shows several important trends shaping the future of this market.
Vietnam’s preferred stock market has grown strongly from 15,000 billion VND in 2018 to 49,750 billion VND in Q3/2023, compound annual growth rate (CAGR) of 27.1%/year. However, the proportion of preferred stocks still only accounts for about 3.5% of Vietnam’s total stock market capitalization, much lower than the 7-10% in developed markets such as the US (9.8%), Singapore (8.5%) and Thailand (6.2%).
Based on data analysis and market dynamics, Pocket Option forecasts 5 important trends that will shape Vietnam’s preferred stock market in the 2023-2025 period:
- Market Size Doubles: Total preferred stock value forecast to reach 95-105 trillion VND by 2025, CAGR of 32-35%/year, driven by businesses’ capital raising needs and low interest rate environment.
- Supporting data: 18 listed companies have announced plans to issue additional preferred stocks worth 28,500 billion VND in 2023-2024.
- Banking sector expected to account for 45-50% of new issuances to strengthen Tier 2 capital according to Basel III.
- Product Diversification: Emergence of new types of preferred stocks such as floating-rate preferred stocks, mandatory convertible preferred stocks (MCPS), and preferred stocks with anti-dilution protection clauses.
- VPBank will issue floating-rate preferred stocks (6% + 12-month VNIBOR rate) in Q4/2023, expected volume 5,000 billion VND.
- Techcombank is researching issuance of “CoCo” (Contingent Convertible) model preferred stocks according to international standards.
- Improved Liquidity: Stock Exchange (HoSE) is improving preferred stock trading mechanism, with goal to increase average liquidity by 35-40% by 2025.
- Expected to apply market making mechanism for preferred stocks from Q2/2024.
- Simplify listing and trading procedures for preferred stocks, shortening time from 15 to 7-10 working days.
- Institutional Investor Participation: Investment funds, insurance companies, and banks are increasing preferred stock proportion in portfolios, expected to hold 60-65% of volume by 2025 (up from current 47%).
- Bao Viet Insurance Company (BVH) has announced plans to increase preferred stock proportion from 5% to 12% of investment portfolio.
- Vietnam Holding Limited is building a specialized fund investing in preferred stocks, expected launch Q1/2024.
- ESG Preferred Stocks: Emerging trend is preferred stocks linked to environmental, social and governance (ESG) objectives, with at least 3-5 large enterprises expected to issue in 2023-2024.
- Novaland Group (NVL) is developing plans to issue 3,000 billion VND “green” preferred stocks linked to carbon emission reduction targets.
- REE Corporation plans to issue preferred stocks with interest rates adjusted downward when renewable energy targets are met.
According to experts at Pocket Option, Vietnam’s preferred stock market will grow at a rate of 30-35%/year in 2023-2025, much faster than the general stock market growth (forecast 8-12%/year). Particularly, in the context of savings interest rates remaining low at 3.5-5%/year and inflation at 3.5-4%, demand for investment instruments providing higher stable income like preferred stocks will continue to increase strongly.
However, for sustainable market development, several current challenges need to be addressed, including: (1) Enhancing transparency in issuance terms and investor rights; (2) Improving liquidity through more effective market mechanisms; (3) Increasing financial education for individual investors; and (4) Perfecting legal regulations to protect preferred shareholder rights.
Conclusion: 5 Practical Investment Strategies with Preferred Stocks in 2023
Through this article, we have comprehensively analyzed what preferred stocks are, types of preferred stocks in Vietnam, advantages and disadvantages, investment performance, and effective investment strategies. Below are 5 specific strategies for Vietnamese investors wanting to take advantage of opportunities from this investment instrument in 2023:
- 20-30-50 Asset Allocation Strategy: Allocate 20% to dividend/cumulative preferred stocks (VIC.P, BID.P, MSN.P), 30% to convertible preferred stocks (VPB.PC, FPT.PC), and 50% to common stocks/bonds portfolio depending on risk appetite. This strategy helps balance between stable income (7-9%/year dividends) and capital growth potential, while reducing overall portfolio volatility to 18-22%.
- “Preferred Stock Ladder” Strategy: Allocate capital evenly into preferred stocks with different call/conversion times (1 year, 3 years, 5 years, perpetual) to create regular cash flow and minimize interest rate risk. This strategy is particularly effective in volatile interest rate environments like now, when interest rates are in a downward trend but may reverse in the next 1-2 years.
- “Core and Satellite” Strategy: Build portfolio with 70% high-quality, stable preferred stocks (VIC.P, BID.P, REE.P) as core, and 30% preferred stocks with higher growth potential (VPB.PC, FPT.PC) as satellites. This strategy provides expected returns of 8-10%/year with low volatility (12-14%), suitable for investors prioritizing capital preservation but still wanting growth opportunities.
- Defensive Strategy in Declining Markets: When signs of market reversal appear (VN-Index drops >10% from peak, MA50 crosses below MA200), gradually shift 35-45% of portfolio into dividend and cumulative preferred stocks with good liquidity (BID.P, MSN.P). Historical data shows this strategy helps minimize losses by 45-55% compared to 100% common stock portfolio during market downturns.
- Interest Rate Spread Strategy: In current low interest rate environment (deposits 3.5-5%), utilize safe financial leverage: borrow at 7-8% interest to invest in preferred stocks with 8-9% yield, creating positive spread of 1-2%/year. This strategy should only be applied with low leverage ratio (maximum 1:1) and only with preferred stocks having high liquidity and low volatility (BID.P, VIC.P).
Preferred stocks are flexible investment instruments, providing balance between stable income and capital growth potential. With attractive dividend yields of 7-9%/year, 80% higher than current savings interest rates (3.5-5%), preferred stocks provide stable income in a low interest rate environment. At the same time, with volatility only 50-60% compared to common stocks, this instrument helps protect portfolios during volatile market periods.
The key to success when investing in preferred stocks is understanding the nature and characteristics of each type, carefully evaluating the financial health of the issuing company, and building an allocation strategy suitable for personal financial goals. In particular, remember that preferred stocks are not an independent investment channel, but should be viewed as part of an overall diversified investment portfolio strategy.
With the strong development of Vietnam’s preferred stock market (expected to double by 2025), this is an ideal time for investors to learn about and begin building positions in this asset class. Pocket Option is committed to providing advanced analytical tools such as the “Preferred Stock Screener” and in-depth market data to support investors in making smart and effective investment decisions.
FAQ
What are preferred stocks and what types are common in Vietnam?
Preferred stocks are hybrid securities between common stocks and bonds, carrying characteristics of both. Holders of preferred stocks typically have no voting rights or limited voting rights, but enjoy dividend preferences (7-9%/year) and payment priority when the company liquidates. In Vietnam, there are 5 common types: (1) Dividend preferred stocks: have fixed dividend rates, e.g., VIC.P (8.2%/year); (2) Convertible preferred stocks: can be converted to common stocks at a predetermined ratio, e.g., VPB.PC (ratio 1:1.2); (3) Redeemable preferred stocks: the company has the right to buy back after a certain period, e.g., MSN.P; (4) Participating preferred stocks: receive additional benefits beyond fixed dividends when the company performs well, e.g., POW.PP; (5) Cumulative preferred stocks: unpaid dividends will accumulate, e.g., BID.P.
What are the main advantages and disadvantages of preferred stocks compared to other investment channels?
Main advantages: (1) Higher stable income than savings: 7-9%/year dividends compared to 3.5-5% savings interest rates; (2) Payment priority: receive dividends before common shareholders and get paid before liquidation; (3) Lower price volatility: 40-60% less volatility than common stocks; (4) Reduced overall risk: reduces portfolio volatility by 23% when allocating 15-25%; (5) Good protection in market downturns: decreases 50-60% less than common stocks. Main disadvantages: (1) Limited price appreciation potential: only increases 5-15%/year; (2) No voting rights; (3) Interest rate risk: price decreases when interest rates rise; (4) Risk of being repurchased when interest rates fall; (5) Low liquidity: trading volume is only 15-20% of common stocks; (6) Risk of suspended dividends during difficult periods.
What investment strategy is most effective with preferred stocks in the current market?
Based on Pocket Option's analysis, the most effective strategy currently is the "20-30-50 asset allocation": 20% in dividend/cumulative preferred stocks (VIC.P, BID.P), 30% in convertible preferred stocks (VPB.PC, FPT.PC), and 50% in a portfolio of common stocks/bonds. This strategy helps balance stable income (7-9%/year) and growth potential, while reducing portfolio volatility by 18-22%. In the current low interest rate environment (3.5-5%), this strategy delivers an expected return of 8-10%/year with significantly lower risk than investing 100% in common stocks. Particularly, when the market shows signs of correction (VN-Index drops >10% from peak), the preferred stock allocation should be increased to 35-45% to protect the portfolio.
How to select high-quality preferred stocks?
To select high-quality preferred stocks, apply a 5-step process: (1) Evaluate the issuing company's financial health: check for ROE >15%, debt/equity ratio <1.0, interest coverage ratio >5.0, positive OCF for 3 consecutive years, dividend payout ratio <70% of profit; (2) Analyze preferred stock terms in detail: carefully read terms regarding dividends, redemption rights, conversion, and shareholder protection clauses; (3) Assess dividend attractiveness: compare with bond yields (should be 1.5-2.5% higher) and deposit rates (should be 3-4% higher); (4) Consider credit ratings and institutional evaluations; (5) Analyze liquidity: prioritize stocks with trading volume >50,000 shares/day and bid-ask spread <2%.
What are the development trends of the preferred stock market in Vietnam in the coming years?
Vietnam's preferred stock market is expected to grow strongly with 5 main trends: (1) Market size doubling: from 49,750 billion VND (Q3/2023) to 95-105 thousand billion VND by 2025, CAGR 32-35%/year; (2) Product diversification: emergence of floating-rate preferred stocks, mandatory convertibles, and anti-dilution protection clauses; (3) Improved liquidity: HoSE is implementing market-making mechanisms and simplifying listing procedures; (4) Institutional investor participation: expected to hold 60-65% of the volume by 2025; (5) Development of ESG preferred stocks: linked to environmental, social and governance objectives. The main growth drivers come from the low interest rate environment, companies' capital raising needs (especially banks to increase Tier 2 capital), and the growing demand for investment instruments that provide stable income superior to savings.
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