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Vietnam’s stock market upgrade to bring in billions of dollars: Experts

High market liquidity, information transparency, and expanding foreign ownership limits are expected to further attract foreign investors.

Vietnam’s stock market upgrade from frontier emerging status would bring in billions of dollars from foreign investors.

 An investor at a securities company in Hanoi. Photo: Pham Hung

General Director of VinaCapital Don Lam gave the remarks at a discussion session under the Vietnam Economic Forum on June 5.

In the past months, the benchmark Vn-Index underwent a strong correction phase, but Lam noted the downtrend is only short-term, calling for investors to stay calm and have confidence in the market.

Last week, the liquidity in the Ho Chi Minh Stock Exchange averaged around VND16 trillion (US$700 million) but plunged to below VND13 trillion ($560 million) in Friday’s session.

According to Lam, the market is under pressure from both internal and external factors, including the volatile global economy with high inflationary pressure, the Russia-Ukraine conflict, and the US rate hike.

Meanwhile, the local authorities' moves to restore order in the stock market against recent acts of market manipulation have also negatively impacted investors’ sentiment.

Lam noted investors are having a huge interest in the Vietnam market, but to ensure its sustainable and stable development in the long term, the key factor would be to upgrade the market at the soonest time possible.

He suggested key factors would be to have liquidity of $2-3 billion per day, high transparency in market operation, and expanding foreign ownership limit.

Lam added the market also needs more products, which means the Government should continue to accelerate the privatization of state-owned enterprises, along with the formulation of a legal framework for the operation of independent pension funds, and encourage individual investors to join specialized investment funds.

Vice-Chairman of the State Securities Commission of Vietnam (SSC) Pham Hong Son noted the capital market has fully developed and operated with stock, bond, and derivative markets.

The size of the capital market expanded by an average of 28.5% per year during the 2016-2021 period, reaching 134.5% of the GDP in 2021, a 3.5-fold increase from that in 2015 when the stock market was estimated at 93.8% of the GDP, and the bond market at 39.7%.

Son, however, acknowledged the rapid development pace of the capital market has posed multiple risks, especially stock price manipulation.

This comes from the fact that public companies have not fully complied with requirements on information disclosure, and individual investors lack understanding of the market.

Transparency a top priority

Deputy Director-General of the Banking and Financial Institutions Department under the Ministry of Finance Nguyen Hoang Duong suggested recent arrests in the market are a warning for companies to improve their transparency in operation.

Duong said the ministry is revising regulations on the private placement of public firms, which many consider to have a certain level of credibility.

Meanwhile, Chief Strategist of Sovico Group Devendra Joshi said for Vietnam to have a fully developed bond market, diversified derivative products are necessary to boost liquidity.

He suggested investors need transparency in information, for which credit rating agencies are required.

Son from the SSC said the Ministry may consider a specialized exchange platform for public companies conducting private placement, which allows a higher level of supervision of the capital flow from bond issuance.

In the meantime, he expected further restructuring of the stock market for greater efficiency in the operation of managed funds and securities companies.

Jonathan Pincus, UNDP Senior International Economist,  called for the Government to promote the green credit fund to ensure sustainable development in the long term.

This is particularly important for Vietnam to realize its net-zero carbon emission by 2050, which requires huge investment capital, he added. Among the priorities, Pincus raised the significance of the domestic capital source, for which the Government should promulgate more favorable policies to attract domestic funds.

As of May, both the Hanoi Stock Exchange (HNX) and the Unlisted Public Company Market (UpCoM) managed by the Hanoi’s stock authorities have 1,211 public firms, including 348 in the HNX and 863 in the UpCoM, with total market capitalization of VND524 trillion, up 1.3% month on month.

For the five-month period, total shares changed hands stood at 10 billion units worth VND274 trillion, down 31.9% in quantity but up 9% in value year on year.