Upgrade of Vietnamese stock market expected this year

Stable growth, short decline

The latest report compiled by the State Securities Commission shows that by the end of January 2019, there were 755 stocks and fund certificates listed across the market and 804 stocks registered on the UPCoM with total listing value of more than VND1,235 trillion, up 26 percent compared to the end of 2017. In addition, market capitalization rose 12.7 percent compared to 2017, accounting for 71.6 percent of the country’s gross domestic product, exceeding the government’s plan for 2020.

So far this year, 32 enterprises with market capitalization from US$1 billion upwards are listed on the two stock exchanges, from just one company five years ago. They include Vingroup with market capitalization of about US$14.3 billion, Vinamilk with US$10.2 billion, and Vietcombank with more than US$9 billion. At the current scale, the Vietnamese stock market has been playing an important role in economic development, supporting the money market, and reducing capital pressure on the banking system.

Along with the general downtrend of the global stock market, the Vietnamese stock market declined for the first time in 2018 after five consecutive years of rallying in parallel with the growth momentum of the economy. However, the decline remained modest compared to other markets in the world and the region. The VN-Index, Vietnam’s benchmark stock index, ended 2018 at 892.54 points, down 9.3 percent from 2017, and the HNX-Index fell 10.8 percent to 104.23 points.

At the same time, a number of stock markets in the world recorded large declines, such as China with 24.6 percent, Germany with 18.3 percent, the Republic of Korea with 17.3 percent, the UK with 12.5 percent and Japan with 12.1 percent. The VN-Index increased about 86 points from 908.67 on February 1 to 994.03 on March 7. With positive market movements, Vietnamese shares recovered from their short-lived decline as investor confidence turned positive.

Great prospects

Compared to other markets in emerging status, the Vietnamese stock market has more advantages thanks to macroeconomic stability, and export growth and investment opportunities provided by free trade agreements, especially the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the upcoming EU-Vietnam Free Trade Agreement (EVFTA).

Le Hai Tra, in charge of the Board of Directors at the Ho Chi Minh Stock Exchange, said that despite many challenges, the Vietnamese stock market has plenty of opportunities to move up from a frontier market status to an emerging market this year. In late September 2018, the UK-based financial and business information firm FTSE Russell added Vietnam’s stock market to its reclassification watch list, a sign that could help raise the status of the Vietnamese market in the global markets. The Vietnamese stock market has met several of FTSE Russell’s ranking criteria for a secondary emerging market, including the legal environment, infrastructure and market quality, deposit and clearing.

In order to be officially upgraded, the Vietnamese market will have to continue to maintain and improve the criteria set out within a minimum review period of one year. The recognition from FTSE Russell would help change the status of the national financial market, promising positive impact on its ability to attract foreign investment, as well as improving market liquidity, the quality of listed companies and motivation to improve the legal framework further.

Vietnam plans a series of specific measures to ensure the stability and sustainability of the stock market. These include further improving the legal framework and completing the revised Securities Law; stepping up equitization and capital divestment from state-owned enterprises in association with listing and trading registration; diversifying stock products and introducing derivatives products and futures on a number of new indexes and government bond futures.

Other targeted measures include improving and developing the bond market; enhancing capacity for system of market intermediary organizations and restructuring the system of securities trading organizations; raising the effectiveness of management and supervision of the stock market and strictly handling violations.