The Vietnam’s corporate bond market lacks two main factors in order to develop itself and catch up with regional countries, according to Viet Dragon Securities Company (VDSC).
First, Vietnam lacks a reputable credit rating agency to help investors obtain reliable information. Secondly, Vietnam still has too few investment funds, mutual funds and other types of large investors.
Singapore, for example, counts many rating agencies following the corporate bond market, including some the world's prestigious rating agencies such as Standard & Poor, Fitch Rating and Moody. Although Vietnam has a few credit rating companies, it will take a really long time to build reputation and build a credible international standard credit rating system.
Meanwhile, individual investors have difficulties entering the corporate bond market due to two main reasons. Firstly, the risk to individual investors will be higher than that of institutional investors because it is difficult for them to diversify their portfolios. Secondly, investment in corporate bonds also requires time and expertise to analyze financial statements of enterprises as information of small and unlisted companies is limited.
Therefore, only institutional investors have the ability to enter the market as these investors often have a department to analyze corporates financial statements. Recently, institutional investors have also begun to pay more attention to the corporate bond market as this is an investment channel that brings stable income and less volatility than Vietnam's stock market. In the past few years, bond funds also had a better results than stock funds.
Although bond funds not only invest in corporate bonds but also Vietnam government bond and valuable papers, the returns of bond funds are better than stock funds, 55.3% or 11.1% per year since its establishment (2013) for bond funds compared with 38.3% or 9.6% per year since its founding (2014) for stock funds.
The corporate bond market in particular and the bond market in Vietnam in general are quite attractive compared to the Vietnam stock market. According to the VDSC, there is a demand for Vietnam’s corporate bond from foreign investors. However, the above limitations, coupled with transparency and language barriers, make it difficult for foreign investors to enter this market. The government sets a goal for the corporate bond market to reach 7% of GDP in 2020 and 20% in 2030.
Nevertheless, VDSC expected that in order to develop the corporate bond market, the number and size of funds needs to grow.
