RATIOCINATES ABOUT STOCK MARKET AND
Ratiocinates about stock market
1.1.1 Concept and essence about stock market
The Securities Market encompasses the system for long-term trading of financial instruments, including bonds, stocks, investment fund certificates, and derivatives like futures and options.
The securities market serves as a long-term capital market essential for investment and economic development, significantly influencing the investment environment and the broader economy It attracts a diverse range of participants with varying purposes, knowledge, and interests, leading to high-value transactions in financial products However, this complexity also creates opportunities for improper profit-making activities, including fraudulent and unfair practices, which can result in substantial losses for investors and negatively impact the overall market and economy.
The operation and supervision of the securities market are crucial for ensuring its effectiveness, fairness, and health, which in turn protects investors' legitimate interests and harmonizes the interests of all participants Each market employs its own monitoring and operating mechanisms tailored to its unique characteristics, thereby leveraging resources for sustainable economic development.
1.1.2 Structure for operating and managing stock market system
In general, organizations involved in market surveillance and management are composed of two groups: governmental agencies and self-governing organizations
State agencies oversee the operation of the securities market, primarily focusing on general management rather than direct control These regulators have the authority to issue regulations that govern market activities, providing a framework for self-governing organizations to manage and supervise the market effectively.
The State Securities Commission (SSC) is the specialized State management agency in the field of securities with the following functions:
• Implement the securities regulatory framework of the Ministry of Finance, in collaboration with self-governing organizations, to effectively supervise and supervise the operation of securities market
• Control all issues in market operations such as securities registration, monitoring of listed companies, detection and handling of fraud cases
• Direct management of self-governing organizations, supervision of the activities of these organizations, handling of violations if self-governing organizations failing to handle them
• Inspect individuals or organizations for the protection of the public interest in the event of a breach of the law
In general, self-regulators include the Stock Exchange and the Vietnam Association of Securities Business (VASB)
The transaction office is a self-managed organization consisting of members securities companies, directly managing and supervising securities trading activities on the Department The transaction office performs the following functions:
• Manage trading activities taking place on the Department by issuing and enforcing regulations for trading activities on the Stock Exchange Market
The Transaction Bureau is responsible for monitoring and tracking transactions between member companies and their clients Upon identifying any violations, it will implement appropriate measures In instances of serious breaches of securities regulations, the Exchange has the authority to report the matter to the Securities and Exchange Commission for further action.
• Operation and supervision of the Exchange must be conducted in accordance with the laws and regulations relating to the securities industry
The Vietnam Association of Securities Business (VASB) is an organization formed by securities companies to unify the voice of the securities industry and protect the collective interests of the securities market VASB is responsible for administering and supervising the securities market effectively.
•Executing and overseeing the decentralized trading market Companies wishing to enter the market must register with VASB and comply with the regulations issued by the Association
• Introduce general regulations for member securities companies in the securities business sector and ensure the implementation of these regulations
Receive complaints from customers and investigate member securities companies to find out the violations, then transfer the investigation results to the securities company for settlement
Representing the securities industry, VASB offers suggestions and suggestions to the government securities market regulators on general issues on securities market
1.1.3 Function and structure of stock market
Securities market embraces these basic functions :
• Mobilize capital for the economy
When securities investors buy securities issued by companies, the money is put into production and thereby contributes to the expansion of social production
The stock market plays a crucial role in enhancing the national economy by facilitating direct investment activities It enables both central and local governments to mobilize capital for economic and infrastructure development, addressing the broader needs of society.
• Provide investment channel for public
The stock market provides a robust investment landscape, featuring a diverse array of securities that cater to different risk tolerances and financial goals This variety allows investors to select options that align with their individual preferences and financial situations As a result, the stock market plays a crucial role in transforming savings into productive investments.
• Provide liquidity to the securities
The stock market provides financial investors with the ability to convert their securities into funds or other securities, highlighting the importance of liquidity This liquidity is a key feature that enhances the appeal of securities for investors and plays a crucial role in ensuring the dynamic and effective operation of the stock market.
• Assess the value of the business and the economy
The stock market serves as a crucial platform for establishing the value of commodities, reflecting both tangible and intangible assets of firms and the economy Through stock price indices, it provides an integrated and precise assessment of value, fostering a competitive environment that enhances capital efficiency This competition encourages the adoption of new technologies and leads to improvements in product quality.
• Create an economic environment that helps the government implement macroeconomic policies
The stock market is a meeting place between long-term supply and demand
The stock market serves as a crucial "barometer" for the economy, with security prices reflecting the performance of businesses and economic sectors Rising stock prices indicate growth in tangible asset investments and overall economic expansion, while declining prices signal negative economic trends This dynamic allows the government to utilize the stock market as a tool for implementing macroeconomic policies, such as buying and selling government bonds to manage budget shortfalls and control inflation Additionally, the government can adopt various policies to influence the stock market, guiding investment to foster a stable, balanced, and sustainable economic environment.
Based on the flow of capital, the stock market is divided into two markets Primary market and secondary market
The primary market is where new securities are first issued and sold, facilitating the transfer of capital from financial investors to issuers In this market, investors purchase newly released securities, enabling companies to raise funds for growth and development.
Characteristics of the primary market:
• Is the only place where securities provide capital to the issuer
• The sellers of securities in the primary market are usually defined as treasuries, the State Bank, issuers and underwriters
• The price of securities in the primary market, fixed by the issuer, is usually printed in securities
The secondary market is the place where securities are traded on the primary market The secondary market guarantees the liquidity of the issued securities
Characteristics of the secondary market:
The proceeds from securities sales are owned by financial investors and securities dealers rather than the issuer This means that capital flows occur between investors in the market, not to the issuer of the securities The primary and secondary markets are closely interconnected, as efficient secondary markets facilitate the smooth operation of the primary market, and vice versa.
Trading in the stock market exemplifies the principle of free competition, where stock prices on the secondary market are determined by the interplay of supply and demand The dynamics of securities supply and demand ultimately dictate stock prices.
• The secondary market is a continuous market and therefore, investors can buy and sell securities several times in this market.
Foreign investment on stock market
Foreign investment involves allocating capital and assets internationally to enhance production, business, and services, aiming for profit generation and achieving specific socio-economic goals.
Foreign investment represents an advanced form of capital export, complementing traditional commodity exports These two export types work in synergy to enhance market penetration strategies for foreign companies and corporations Alongside international trade, they are key components driving the trend of global economic integration.
International financial institutions such as the International Monetary Fund (IMF), World Bank (WB), and Asian Development Bank (ADB) provide various aid programs to assist developing countries in reforming their economic structures and institutions These programs often include preferential credits, low interest rates, and extended grace periods, specifically targeted at low-income member countries However, once a country surpasses the low-income threshold, it loses access to these favorable development credits and incentives.
Official Development Assistance (ODA) serves as a crucial source of international capital for developing countries, facilitating the execution of essential technical infrastructure projects These projects encompass vital areas such as transportation (roads and bridges), utilities (electricity and water supply), sanitation (sewers and drainage), as well as education and healthcare initiatives aimed at poverty reduction.
Foreign Portfolio Investment (FPI) involves international investments made through banks and the stock market, where foreign companies buy and sell financial assets of domestic enterprises Primarily characterized as a short-term investment, FPI transactions are mainly conducted by equity investors or banks in financial markets A key aspect of FPI is that investors can own equities and bonds in the host country's market without directly participating in corporate governance.
Foreign Portfolio Investment (FPI) serves as a crucial source of international capital for many developing countries, yet it carries higher risks compared to other investment sources During capital market turmoil, particularly amid currency crises, international investors tend to make rapid buy and sell decisions, leading to highly sensitive capital flows influenced by market conditions and news Consequently, countries that utilize FPI must implement suitable mechanisms and regulations to optimize this vital source of capital while also adopting precautionary measures to mitigate fluctuations in capital markets.
Indirect investments made by foreign investors come in two main forms::
Investors directly buy shares, stocks, bonds and other valuable papers of enterprises, government and self-governing financial institutions which are allowed to be issued in the financial market
Investors indirectly investing through a securities investment fund or another financial intermediary in the financial market
In today's financial market, investment funds can be classified based on various criteria, particularly focusing on their operational structure and the extent of capital contributions.
The classification in the form of operation:
Closed-end funds are publicly issued investment vehicles represented by fund certificates that are traded on the secondary market according to market regulations Unlike open-end funds, closed-end funds do not allow for the repurchase of shares when investors wish to sell Instead, the issuance of fund certificates occurs only during the initial fundraising phase or when the charter capital is increased through a securities or fund management company.
Open-end funds are investment vehicles that facilitate continuous trading of fund certificates or stocks through securities companies, banks, or fund management firms These funds are required to maintain a specific amount of cash to ensure the repurchase of fund certificates and effective liquidity management.
The classification in the form of capital contribution:
Public funds are investment vehicles created through collective capital contributions from a diverse group of individual investors, aimed at maximizing returns while minimizing risk These funds allow an unlimited number of investors to participate, making them accessible to a wide audience seeking effective investment opportunities.
Member funds are investment pools created by a select group of investors, typically legal entities and investment organizations, to mobilize capital for various opportunities These funds often have a higher risk tolerance compared to public funds, allowing them to pursue more aggressive investment strategies.
Foreign Direct Investment (FDI) plays a crucial role in the global economy, particularly in the context of today's international landscape It occurs not only between industrialized nations but also between developed and developing countries In recent years, many nations, including those in the developing world, have actively participated in FDI, launching investment projects across borders.
Foreign Direct Investment (FDI) is intricately linked to Official Development Assistance (ODA) When relations between donor and recipient countries are normalized, ODA serves as a crucial source of capital, enabling enterprises from donor nations to undertake FDI projects in recipient nations.
Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) are closely linked as significant forms of private investment that complement and enhance each other Countries with mechanisms and regulations aligned with international standards are more likely to attract both types of investment While FPI is typically a short-term investment, FDI represents a long-term commitment, with projects often spanning durations of 10, 20, or even 50 years or more.
1.2.3 Impacts of Foreign portfolio investment on stock market
Foreign portfolio investment (FPI) differs from foreign direct investment (FDI) in that it does not directly enhance production capacity Instead, FPI offers benefits such as knowledge spillovers, improved management skills, and supportive technology It contributes to economic growth by enhancing solvency and capital market performance, thereby optimizing resource allocation and promoting effective management reforms within the economy (Nguyễn Thanh Huyền, 2015)
The benefits derived from foreign porfolio investment are seen in the following aspects:
Experiences from internationals in attracting foreign investment capital
Foreign direct investment (FDI) plays a crucial role in enhancing the financial structure of the economy and restructuring the securities market To effectively attract and manage this investment, Vietnam must implement stringent regulations that ensure capital is utilized for sustainable development Drawing from the experiences of other countries and its own development practices, Vietnam can formulate policies that effectively regulate foreign investment in the securities market, optimizing the benefits of foreign portfolio investment.
Experiences of some countries in the world
China has sustained impressive economic growth for decades, attracting foreign investors despite stringent regulatory policies These regulations are viewed as stabilizing factors that enhance macroeconomic conditions and promote economic growth The process of attracting Foreign Portfolio Investment (FPI) in China has yielded significant success.
To effectively attract Foreign Portfolio Investment (FPI), it is essential to implement synchronized solutions that align with China's historical context and economic development goals This approach should incorporate targeted measures to enhance the securities market and improve government management practices, ensuring a cohesive strategy that adapts to evolving economic landscapes.
China has strategically focused on attracting Foreign Portfolio Investment (FPI) by aligning its approach with the unique characteristics of its economy This involves enhancing the domestic environment to foster the development of the securities market while simultaneously improving the quality of goods available in that market.
China has successfully integrated foreign portfolio investment (FPI) with effective flow control, prioritizing strategic management over attracting FPI at any cost By aligning FPI with macroeconomic policies, particularly in foreign exchange and monetary policy, China has implemented measures to manage and mitigate the potential negative impacts of capital flows on its economic development.
Despite China's significant achievements, the country continues to grapple with numerous challenges The solutions implemented to attract Foreign Portfolio Investment (FPI) have yielded modest results, which fall short of the nation's vast potential and attractiveness.
Firstly, there are still many limitations to investors, the legal system relating to this capital flow still has many loopholes, shortcomings, need to continue to improve
Investor participation in China's securities market is primarily dominated by small investors, while institutional investors maintain a relatively minor presence The government's management strategies have not effectively adapted to the evolving capital flow, as noted by Chinese Premier Wen Jiabao, who highlighted the need for improved administrative measures to attract and manage this capital Consequently, foreign portfolio investment (FPI) constitutes a minimal portion of China's overall social investment.
Thirdly, the problem of rumors remains a big problem that can not be solved and causes many implications for China securities market February 27,
In 2007, dubbed the "dark third day" of China's securities market, rumors emerged of a potential 20% tax on securities returns, causing immediate turmoil This speculation led to a mass sell-off by investors, both domestically and globally, resulting in an 8.8% plunge in the Shanghai Stock Exchange—the largest decline in a decade—amounting to an estimated loss of $100 billion.
The decline of the Chinese securities market has had a ripple effect on global markets, including those in the USA, UK, France, Japan, Korea, and Singapore This situation serves as a critical lesson for Chinese policymakers regarding the implementation of capital controls It highlights the sensitivity of foreign portfolio investment (FPI) flows to securities market policies Consequently, direct capital controls through administrative measures are becoming outdated; a shift towards portfolio capital controls, which are market-based, is now more appropriate.
Therefore, China's experience in attracting and managing FPI flows is a useful lesson for Vietnam in attracting and managing this capital effectively
Throughout the 1990s, Thailand maintained its fiscal liberalization policies despite the 1997-1998 financial crisis, lacking cautious regulatory measures for foreign capital inflows, including Foreign Portfolio Investment (FPI) While Thailand implemented some foreign exchange management measures, these efforts were ineffective due to poor coordination and a lack of alignment with other macroeconomic policies, resulting in inadequate supervision and regulation of the domestic financial system.
The financial crisis in Thailand highlights the necessity for a flexible exchange rate regime to achieve independence in monetary policy and liberalize capital movements Conversely, if a fixed exchange rate is to be upheld alongside monetary policy independence, it is crucial to implement careful regulatory measures on capital flows Neglecting this approach has exposed Thailand to severe risks from volatile investor behavior, ultimately leading to a significant crisis.
Since 1992, India has permitted foreign investors to enter its financial market, with the introduction of the Foreign Institutional Investor (FII) regulation in 1995 serving as the first framework for foreign portfolio investment To participate, foreign investors are required to register with the Securities and Exchange Board of India (SEBI), which involves extensive administrative procedures that can restrict foreign capital influx into the securities market To enhance foreign investment in this sector, India has enacted various regulations and policies aimed at attracting global investors (Le Quoc Tuan & Nguyen Quynh Chi, 2014).
Current Indian regulations have been more open to foreign investors For example, on the subject of investment, the Regulations of Foreign Investment in
In 2014, the Securities and Exchange Board of India (SEBI) expanded the range of investors permitted to participate in the securities market, allowing both large foreign financial institutions, including central banks and government organizations, as well as ordinary institutional investors to register for investment Previously, foreign investors were required to register with SEBI within the first five years of their investment activities; however, they can now streamline this process by registering through appointed custody members, such as securities companies and investment banks authorized by SEBI.
Foreign investors now have access to an expanded array of investment tools in the Indian stock market, as per SEBI regulations They can invest in various instruments, including listed shares, government bonds, mutual fund certificates, and treasury bills, which were previously unavailable The investment process has been simplified, allowing foreign investors to place direct investment orders with agents instead of going through licensed securities companies Additionally, foreign investors are permitted to invest in derivative securities, enhancing their opportunities in the Indian market.
India has significantly reduced taxes on foreign investment, lowering the short-term capital gains tax from 40% to 30% and the long-term capital gains tax from 20% to 10%, as per the Direct Tax Council's directives These tax incentives aim to attract more capital from foreign investors to the Indian stock market, fostering a more favorable investment environment.
Tendency of FPI flows in the current period
In 2017, the global economy is projected to experience significant growth, with most regions showing improved performance Asia is anticipated to lead this growth, particularly through strong economic activity in China and other Southeast Asian countries, which are expected to attract continued investment from private equity firms.
China continues to be a focal point in the Asia-Pacific region due to its status as the largest economy, making it a critical market for major investment funds However, recent years have seen signs of slowing GDP growth, raising concerns among investors A key area of interest is China's integration policy, particularly initiatives like "One Belt, One Road," which presents significant opportunities for Chinese businesses to engage in and benefit from global trade.
Southeast Asia is focusing on developing countries like the Philippines, Indonesia, Vietnam, Malaysia, and Thailand, alongside the more developed Singapore As a significant economic hub, Singapore serves as a regional administrative center with a strong influence on the financial sector, particularly its thriving stock market It remains a preferred destination for global investors seeking to tap into high-growth opportunities in Southeast Asia The potential of emerging markets continues to attract foreign investment, driven by trends such as urbanization, a rising middle class, and increasing free trade agreements.
In the short term, capital inflows are predominantly directed towards the residential, financial, and emerging real estate sectors Key areas of interest include public infrastructure, technology aimed at enhancing human life, anti-aging innovations, and environmentally friendly energy solutions (John Woods, 2017).
The experience gained from attracting foreign direct investment in some countries as well as the necessary basic arguments on foreign investment is summarized in chapter I, with the following conclusions:
Foreign portfolio flows into emerging markets are characterized by high liquidity, short-term volatility, reversible volatility, and various forms of complexity
Foreign portfolio investment (FPI) inflows can have both positive and negative effects on the Vietnamese economy Therefore, Vietnam must adopt a cautious and adaptable approach in crafting policies to attract FPI, drawing lessons from successful experiences in China and the regulatory practices of India and Thailand.
ACTUAL STATE OF FOREIGN PORTFOLIO
Overview of Vietnam stock market
The Vietnam securities market, established nearly 18 years ago, remains relatively young compared to global and regional markets It comprises two main stock exchanges: the Ho Chi Minh City Stock Exchange (HOSE) and the Hanoi Stock Exchange (HNX), along with the Unlisted Public Company Market (UPCOM).
Ho Chi Minh City Stock Exchange - HOSE:
Over the 15 years of operation, the Ho Chi Minh Stock Exchange (HOSE) has experienced significant milestones categorized into six distinct phases, each reflecting the fluctuations of the securities market and the broader Vietnamese economy.
The Vietnam securities market was established with the launch of the Ho Chi Minh City Securities Trading Center on July 20, 2000, which held its inaugural session on July 28, 2000, featuring only two shares: REE and SAM Over the years, the market expanded to include bonds and, four years later, the VFMVF1 fund certificates, showcasing a diverse range of commodities After four years of operation, the Ho Chi Minh City Securities Trading Center was honored with the Third Labor Medal by the State President, highlighting its significant contribution to the country's financial landscape.
The listing of enterprises on the Vietnam securities market marked a significant turning point, particularly with the involvement of the banking sector, exemplified by Sacombank Joint Stock Commercial Bank's listing on December 7, 2006 This era also saw HOSE's breakthrough in facilitating the sale of shares from equitized state-owned enterprises (SOEs), highlighted by the successful auction of Vietnam Dairy Products Joint Stock Company (Vinamilk) in 2005 As a result, HOSE has increasingly established its prominence in the securities market and the broader economy, underscored by the visit of former US President George W Bush.
W Bush and US Secretary of State Condoleea Rice and was awarded the Government emulation flag in 2006
The Exchange Tower, inaugurated on July 26, 2014, is a state-of-the-art facility spanning over 26,000 square meters and meets TIA-942 Data Center standards at TIER 3 Alongside ongoing developments at Quang Trung Software Park, these projects significantly enhance the infrastructure of Vietnam's securities market, elevating it to a level comparable to other ASEAN stock exchanges This advancement has also led to the introduction of new market products, building on the success of the VN30 and offering investors a wider array of market segments.
In 2014, HOSE introduced the HOSE-Index, which includes VNMidcap, VN100, VNSmallcap, and VNAllshare Additionally, in October 2014, HOSE officially launched its first Exchange-Traded Fund (ETF), marking a significant advancement in market offerings The introduction of these products has enhanced market diversification and provided investors with more investment tools.
Hanoi Stock Exchange - HNX and UPCOM :
The Hanoi Stock Exchange was established through Prime Minister's Decision No 01/2009/QD-TTg, transforming the Hanoi Securities Trading Center, which was originally founded under Decision No 127/1998/QD-TTg It commenced operations on March 8, 2005, and officially launched on June 24, 2009, functioning as a one-member limited liability company owned by the State and represented by the Ministry of Finance.
The Hanoi Stock Exchange (HNX) plays a crucial role in managing and operating the stock exchange market by conducting stock auctions, facilitating government bond bidding, and mobilizing capital for the state budget Additionally, HNX oversees three secondary trading markets on a technological platform: the listed stock market, the specialized bond market, and the Unlisted Public Company Market (UPCOM).
After 20 years of establishment and development, the securities industry has overcome many difficulties and challenges to achieve great achievements contributing to the economic development of the country, reflected on the following contents:
Firstly, stock market has been established to suit the development level of the country, step by step approaching international standards and integrating into the world economy
To enhance the legal framework and policies in alignment with the national economy, it is essential to develop and refine laws, decrees, circulars, regulations, and procedures The primary focus should be on the effective implementation of the most widely adopted legal documents, such as decrees.
On July 11, 1998, Decree No 48/1998/ND-CP established a legal framework for the securities and stock market in Vietnam This was later succeeded by Decree No 144/2003/ND-CP, which introduced significant innovations to align with evolving market practices, thereby enhancing the Securities Law.
On January 1, 2007, Law No 70/2006/QH11 was enacted, followed by the implementation of Law No 62/2010/QH12 on July 1, 2011, which amended and supplemented several articles of the Securities Law.
The stock market was established to facilitate capital raising for both the government and businesses, promoting investment in production and business growth Additionally, it serves as the primary distribution channel for government bonds, aiding in the enhancement of the state budget.
Fourth, stock market actively contributes to the promotion of equitization of SOEs, enhances social supervision of business operations
As of December 21, 2017, the stock market's capitalization has surged to approximately 3,360 trillion dong, marking a 73% increase from the end of 2016 and representing 74.6% of the GDP, surpassing the 2020 target This growth has been accompanied by a significant enhancement in market liquidity, with the average daily transaction size reaching nearly 4,981 billion dong, a 63% rise compared to the average in 2016.
Year Individual Incorporation Total YOY growth rate
Actual state of acttracting foreign portfolio investment activities in the
2.2.1 Actual number of securities trading accounts of foreign investors
Foreign investors (both individuals and organizations) need to register transaction codes with Vietnam Securities Depository to make investment in Vietnam stock market
The opening of the market and increased access to global capital, supported by the Party and State, has led to significant growth in the Vietnam stock market, attracting a rising number of foreign investors, both individuals and organizations, to open investment accounts.
Since its inception in 2000, the Vietnam stock market has seen a consistent rise in the number of foreign investors, both in terms of quantity and investment value, reflecting the market's increasing activity and integration into the global economy.
Table 2.1: Numbers of trading account of FI in Vietnam stock market
As of the end of 2010, the number of foreign investors in the Vietnam stock market was 13,835, including 13,035 individual investors and 800 institutional investors
In June 2011, the Ministry of Finance released Circular No 74/2011/TT-BTC, which provided guidelines for securities trading This regulation enabled investors to open multiple accounts and facilitated same-day trading of securities, aiming to enhance market activity and investment opportunities.
As of the end of 2011, the Vietnam stock market experienced a 13% increase in the total number of foreign investors, reaching 15,569 This figure comprised 13,845 individual investors and 1,724 institutional investors, highlighting the growing interest in the market and its improved liquidity, which helps mitigate risks for investors.
The macroeconomic landscape is set for stability, with enhanced investment potential and ongoing initiatives to improve the investment environment, highlighted by the government's decision in June 2015 This proactive approach has led to a consistent increase in the number of foreign investors year after year.
The number of foreign investor accounts in 2016 and 2017 is very positive
By the end of 2017, the number of foreign investors totaled 23,506, of which there were 19,956 individual investors and 3,550 institutional investors, up nearly 16 percent from the end of 2016
2.2.2 Status of stock trading value of foreign investors
Despite the challenges posed by the 2008 economic crisis, the Vietnam stock market continues to show positive signals, instilling confidence in investors regarding its profitability This resilience highlights the potential for investment opportunities in Vietnam's stock market.
Below is a table of data and charts showing the value of foreign investors in HOSE in the period 2010-2017:
Table 2.3: Stock trading value of FI in HNX
In 2010, foreign direct investment in the Ho Chi Minh Stock Exchange reached approximately 44,483 billion dong, while the Hanoi exchange value was 3,314 billion dong This indicates that Vietnam's stock market remains attractive to foreign investors, despite not fully recovering from the significant downturn following the 2008 economic crisis In addition to market purchases, foreign investors are also exploring share issuances and OTC stock acquisitions to stimulate the market in the upcoming period.
Since November 5, 2010, monetary policy has been implemented and further reinforced by Resolution 11 on February 24, 2011, alongside administrative measures to regulate credit growth, capping it at 20% for 2011 This approach prioritized credit allocation towards production, business development, agriculture, exports, and supporting industries Consequently, foreign investor trading value in the stock market encountered significant challenges due to the overall economic climate and the tightening of monetary policy, with a total of VND 29,757 billion in 2011, marking a 34% decline from 2010 on the Ho Chi Minh Stock Exchange (HOSE) Similarly, the Hanoi Stock Exchange reported a trading value of VND 2,572 billion in 2011, reflecting a 22% decrease compared to the previous year.
In 2012, foreign investor trading value rose by 9% to 32,577 billion VND, up from 29,757 billion VND in 2011 Investors net bought nearly 3.188 billion VND on HOSE, nearly tripling the net purchase value from the previous year On HNX, transaction value surged by 47% to 3,781 billion VND, compared to 2,572 billion VND in 2011.
In 2013, new regulations significantly enhanced the liquidity of Vietnam's stock market, notably through the extension of trading hours to 15 hours and the reduction of payment time from T + 4 to T + 3 These changes facilitated faster capital flow and encouraged investors to make more active investment decisions Foreign investors were particularly active, with net purchases amounting to VND 5,505 billion on HOSE, contributing to a 37% increase in transaction value compared to 2012 This surge positioned Vietnam among the top countries experiencing the strongest market recovery globally, while HNX also saw a 10% rise in trading value, reaching VND 4,167 billion.
Over the past four years, Vietnam's macroeconomic stability and improvements have significantly attracted foreign investors to its stock market Between 2012 and 2014, there was a notable influx of foreign investment, solidifying Vietnam's position as a desirable destination for investors By the end of December 2014, foreign investors had net purchases totaling 2,886 billion dong on the Ho Chi Minh Stock Exchange (HOSE), reflecting a substantial increase in trading activity compared to previous years.
2013 Foreign investor transactions reached 68,479 billion, up 53% over the trading value in 2013 On HNX, the transaction value reached 6.540 billion copper up 57% compared to 2013
On June 26, 2015, the Vietnamese Government implemented Decree 60/2015/ND-CP, which significantly relaxed policies for foreign investors, allowing them to invest without limits in mass enterprises outside of conditional business lines This regulation marked a pivotal shift in attracting foreign capital to Vietnam's stock market, enabling unrestricted investments in government and corporate bonds The move to permit greater foreign ownership in local businesses is a key advancement that elevates Vietnam's stock market from a marginal to an emerging market status Furthermore, on December 18, 2015, the Securities Depository Center introduced new regulations for securities trading, establishing a payment date of T + 1, which enhances trading efficiency and allows investors to capitalize on favorable market conditions According to HOSE statistics, foreign investors remained net buyers throughout 2015, continuing a trend observed since 2013.
In 2014, foreign investors' trading value on the HOSE declined slightly to VND 68,438 billion, influenced by global financial challenges, particularly China's yuan devaluation, which impacted Vietnam's export rates The following year, the foreign investor landscape shifted significantly, resulting in a net selling value of VND 7.729 trillion on the HOSE, despite a net buying of VND 1.063 trillion on the HNX However, trading value surged by 31% year-on-year in 2016, reaching VND 89,538 billion, alongside a 46% increase in resale value on the HSX To counter these fluctuations, the government implemented decisive measures aimed at enhancing the business investment environment and ensuring macroeconomic stability The promotion of equitization and stock market transactions contributed positively to the availability of quality goods in the market In 2017, the Vietnamese stock market achieved a historic milestone with the VNIndex nearing the 1200 mark, reflecting robust foreign cash flow participation.
In 2017, foreign investment activities on the Ho Chi Minh City Stock Exchange (HOSE) outperformed those on the Hanoi Stock Exchange (HNX), as evidenced by higher transaction values and securities sales This trend is largely attributed to HOSE's earlier establishment, which allowed major corporations like VNM, VCB, and GAS to list there According to the State Securities Commission, by the end of 2017, HOSE's stock market size had surged by 75.24% compared to the previous year, exceeding significant growth expectations.
Figure 2.1: Trading statement of foreign investors in HOSE (Unit: billion vnd)
2.6 million billion, accounting for about 91% Capitalizing on the stock market in Vietnam Therefore, HOSE is more dominant in attracting foreign investment compared to HNX
2.2.3 Capital size of foreign organizations
The growth of the Vietnam stock market has been significantly influenced by institutional investors, particularly by the end of 2017, when approximately 40 funds were active in the market with varying capital sizes and investment objectives Notably, prominent funds like Dragon Capital, VinaCapital, and Duxton AM have established a strong presence in Vietnam's stock market The majority of these investors hail from European nations, including the Netherlands and Belgium, as well as Northeast Asian countries such as Korea, Japan, and China.
Table 2.4: List of foreign investment funds in the stock market of Vietnam
No Fund name Management agency Starting year Type Asset value in
Investment Limited (VEIL) Dragon Capital 1995 Close- end 974
Fund (VOF) VinaCapital 2003 Close- end 864
3 Vietnam Phoenix Fund Duxton Am 2006 Close- end 369
4 Mutual Fund Elite PYN 1999 Open- end 351
7 FTSE Vietnam ETF Deutsche Bank 2008 ETF 248
Opportunities Fund JPMorgan AM 2006 Open- end 159
Fund (VEEF) PXP Vietnam AM 2005 Open- end 124
Fund (VEUF) Dragon Capital 2013 Open- end 95
Partners Vietnam Fund Vinawealth 2015 Open- end 61
18 Tundra Vietnam Tundra Group 2014 Open- end 45
(VdeF) Dragon Capital 2007 Open- end 44
20 Lumen Vietnam Fund CBR Investment
21 Vietnam Equity Holding Saigon AM 2007 Open- 38 end
22 Nikko Vietnam Fund SMBC Nikko
23 AFC Vietnam Fund Asia Frontier capital 2013 Open- end 30
Fund Amundi AM 2007 Open- end 27
Vietnam Prevoir Group 2007 Open- end 25
26 APS Vietnam Alpha Fund APS AM 2011 Open- end 24
Fund SICAV VAM 2014 Open- end 21
29 Vietnam Property Holding Saigon AM 2007 Open- end 18
30 Fullerton Vietnam Fund A Fullerton Fund
31 Fullerton Vietnam Fund B Fullerton Fund
Cap KBC Capital 2008 Open- end 13
Companies Fund PXP Vietnam AM 2015 Open- end 6
(Source: Học viện chứng khoán - DOBF)
Assessing the statement of attracting foreign portfolio investment
Amidst a challenging global stock market landscape, Vietnam's stock market is demonstrating signs of recovery and entering a new growth phase Following a previous economic crisis, the market has shown significant achievements in recent years, indicating a positive trajectory for investors and the economy.
In recent years, the Vietnam stock market has experienced significant foreign investment interest, attracting investors from various countries beyond the usual participants from Korea and Japan The number of trading accounts surged by 16% since 2016, with transaction values reaching an impressive 10 trillion VND in a single session These statistics highlight Vietnam's economy as a reliable and promising investment destination in the region.
The achievements of the Vietnam stock market highlight the country's significant potential for future economic growth and reflect the increasing confidence of international investors in its administrative institutions Recent improvements in Vietnamese laws indicate advancements in governance, judicial processes, and information transparency, contributing to a more favorable business environment in Vietnam.
The Vietnam stock market is vital to the overall economy, attracting long-term and sustainable investment from the international community This commitment underscores the market's significance and potential for growth.
1 this belief in the effort to improve the limitations and shortcomings that exist in the Vietnam stock market.:
Numerous economic scandals have emerged in the Vietnam stock market, including the fraudulent listing of MTM on the UPCOM floor, resulting in hundreds of billions in losses Additionally, by the end of 2017, the misappropriation of client funds by the Vietnam Industry Securities Company (ISC) further exacerbated the situation These incidents not only inflicted significant financial damage on foreign investors but also tarnished the reputation of the Vietnam stock market internationally.
Foreign investors find equitization deals in Vietnam to be a highly appealing investment opportunity The Vietnamese government initiated a divestiture plan over five years ago, aiming to boost the number of equitized firms By the end of 2017, 45 companies had received approval for equitization; however, only slightly more than 50% of these firms had actually completed the process.
Despite significant improvements in the political and economic landscape, Vietnam still grapples with high corruption levels, ranking 107 out of 180 countries in Transparency International's 2017 Corruption Perceptions Index This places Vietnam behind regional peers like Singapore, Thailand, and Malaysia Additionally, the Heritage Foundation's 2018 Economic Freedom Index reflects a modest ranking of 141 out of 180, even lower than Laos, which is largely considered unfree.
Foreign investors have difficulty in understanding the market and making investment decisions because of language barriers
After pointing out the limitations of the Vietnam stock market in attracting foreign porfolio investment, the thesis proposes the following reasons:
The economic challenges facing the Vietnam stock market primarily stem from insufficient oversight and management by regulatory authorities High-profile lawsuits, such as the MTM case, highlight the inadequacies in existing regulations and punitive measures, which are often too lenient to effectively deter misconduct This lack of stringent enforcement contributes to ongoing instability in the market.
The rapid increase in the number of securities companies in Vietnam, akin to "instant noodles," has led to a decline in professional quality and reputation within the industry This trend, exemplified by ISC Securities, highlights a significant vulnerability in the Vietnamese stock market, as many firms prioritize their interests over customer trust, resulting in potential exploitation and damage to property.
The slow progress of capital withdrawal can be attributed to several factors, primarily the challenges in accurately valuing enterprises, particularly those with significant real estate assets, which experience constant fluctuations and lack stable pricing This uncertainty deters many investors Additionally, the existing policies on equitization are insufficient, as there is a disconnect between theoretical frameworks and practical implementation, with critical decrees regarding the organization and operation of large corporations yet to be issued Ongoing legislative efforts aim to address these issues, but the current legal landscape is complicated by overlapping frameworks, including the Enterprise Law, SOE equitization laws, and the Anti-Corruption Law, which complicate capital contributions, share purchases, and corporate governance.
The current market offers a limited selection of goods, restricting investors primarily to the stock market and soon-to-be-launched derivative stocks and warranted securities in early 2018 Due to the scarcity of investment options, there are few strategies available for investors to effectively minimize their risk.
Many companies fail to offer information in English or other widely spoken foreign languages, hindering foreign shareholders' access to essential details about company operations and shareholder meetings This has led to instances where foreign shareholders attend meetings without proper approval from the company Additionally, domestic enterprises often adhere to outdated accounting practices that do not align with international standards, creating apprehension among foreign investors regarding capital investment.
Recent research on the Vietnam stock market reveals a positive trend, with significant interest from foreign investors in both quality and quantity Over the past year, the market has experienced notable success, surpassing previous limitations The author identifies several factors contributing to these challenges, based on studies by earlier scholars To build on this momentum and achieve further success in 2018, it is essential for the Vietnamese government, citizens, and businesses to work collaboratively and strive for excellence.