Want to be in the loop?
subscribe to
our notification
Business News
VIETNAM'S STOCK MARKET AT THE BEGINNING OF A MULTI-DECADE SURGE
While the number of retail stock brokerage accounts in Vietnam only equates to around 3 per cent of the country’s population, VinaCapital believes Vietnam is still at the very beginning of a multi-decade development of its stock market.
The development of Vietnam’s stock market leapt forward in recent years. For example, the number of Vietnamese companies with market capitalisations of over $1 billion rose from 10 in 2015 to nearly 50 today, while the stock market’s total value surged from 30 to 90 per cent of Vietnam’s GDP, which is comparable to that of Vietnam’s regional peers.
Recently, a surge in retail investor participation further propelled the market’s development. The number of new stock brokerage accounts opened by retail investors doubled in 2020, and in the first half of 2021, the total number of new accounts was more than the number of new accounts in 2019 and 2020 combined. A series of record high monthly account openings were widely reported in the local press, which has in-turn enthused investors in Vietnam’s stock market and helped the VN-Index shrug off COVID-19-related issues this year.
This recent enthusiasm to invest in the stock market partly stems from a circa 150 basis point drop in the 1-year term deposit rates that banks pay savers, as well as from an expected 36 per cent surge on-year in earnings in 2021. Interest rates started falling in early 2020, which prompted many savers to seek alternative investments when their deposits matured, which corresponds to the surge in monthly retail brokerage account openings.
Vietnamese investors have historically invested in real estate, gold, and/or in the stock market – in that order of preference. However, attractive investment opportunities in Vietnam’s real estate market dried up recently for a few reasons, including COVID-19-related construction delays, while gold is currently less appealing to many local savers because gold prices traded in a narrow range over the last year, and because the price of gold in Vietnam is already 17 per cent above world gold prices (Vietnam imposes strict quotas on gold imports).
In the absence of attractive investment alternatives, local savers are turning to the stock market and the enthusiasm with which newly initiated retail investors are embracing the stock market, coupled with the very low current participation rate of retail investors, are clear indicators that this is a sustainable development. Budding investment communities are forming with very active and sophisticated on-line discussions about stocks, mutual funds, and ETFs, and local fund management companies are being inundated with inquiries.
We view retail investors’ current enthusiasm as yet another harbinger of the development that lies ahead for Vietnam’s stock market, given that retail investor participation in the market is still in its infancy, Vietnam’s mutual fund industry is at a very early stage of development, corporate pension plans are just starting to be introduced, and the fact that derivative products were only recently introduced to the local market.
The number of retail stock brokerage accounts in Vietnam is only equal to around 3 per cent of the country’s population, despite the recent surge of retail participation, and that 3 per cent figure is comparable to Taiwan’s retail stock brokerage account penetration rate around 1986. Vietnam is following the same “East Asian Development Model” that Taiwan and the Asian Tigers used to become wealthy – and every Asian Tiger’s stock market flourished as their economies grew – so we believe Vietnam is still at the very beginning of a multi-decade development of the country’s stock market
Vietnam’s government aims to increase the country’s stock brokerage penetration rate to 5 per cent by 2025, and to 10 per cent by 2030, which seem like realistic targets given the trajectory of Taiwan’s retail investor participation when it was at a comparable stage of economic development; Vietnam’s $3,500 per-capita GDP is similar to Taiwan’s $4,000 (expressed in terms of 2020 USD) when its retail stock brokerage penetration rate was still only 3 per cent.
Vietnam’s new retail investors exploded the country’s daily trading volumes. This surge overloaded the stock exchanges’ trading and clearing computer systems, causing some disruptions, including the early closure of the Ho Chi Minh City Stock Exchange (HSX) in the afternoon of June 1, 2021.
The HSX exchange had been using the same trading systems since it was established 21 years ago, and temporarily upgraded to a system developed by FPT, Vietnam’s leading technology company, on July 5. The FPT system boosted HSX's capacity from 900,000 to around four million orders per day, and an upgrade to a system developed by the Korea Stock Exchange (KRX) has already been in the works for some time and is likely to go live in early 2022.
The KRX system, which is currently being tested, will have additional features besides increased capacity, including eliminating the need to pre-fund trades, and the ability to do same-day settlement, which will enable intra-day trading in Vietnam.
The recent enthusiasm of retail investors to invest in Vietnam’s stock market was prompted by falling interest rates and robust corporate earnings growth, and is another step in the development of the market we expect in the decades ahead.
The participation rate of local investors in the stock market is still in its infancy compared to Asian Tigers such as Taiwan when those economies were at a similar stage of economic development, and all the basic building blocks of a modern stock market are still being put in place to accommodate anticipated growth.
Source: VIR
Related News
![Card image cap](/uploads/news/bn-01.jpg)
VIETNAM INTENSIFIES E-COMMERCE TAX SCRUTINY
The department plans to offer guidance for and hold direct dialogues with e-commerce taxpayers to ensure compliance. Efforts will also include updating the e-commerce database, conducting risk analysis, and leveraging artificial intelligence (AI) to manage data and issue alerts.
![Card image cap](/uploads/news/eco2.jpg)
FOOTWEAR EXPORTS SEEN REACHING US$27 BILLION THIS YEAR
This optimistic forecast reflects the industry’s efforts to expand and diversify its markets. Lefaso indicated that Vietnam’s footwear sector will concentrate on traditional markets like the U.S. and the European Union, alongside markets with free trade agreements to maximize opportunities.
![Card image cap](/uploads/news/Security.jpg)
2025 PIVOTAL FOR STOCK MARKET UPGRADE EFFORT
The Ministry of Finance (MoF) is expected to soon publish the entire content of the draft circular amending and supplementing four circulars on transactions, registration, depository, and clearing, as well as operations of securities companies and information disclosure. This move, along with feedback and explanations, aims to meet the criteria for upgrading Vietnam’s stock market.
![Card image cap](/uploads/news/Eco3%20%281%29.jpg)
CAPITAL FLOWS STRONGLY INTO INDUSTRIAL REAL ESTATE
Industrial real estate has had easier access to bank credit since July, when the State Bank of Vietnam (SBV) reduced the credit risk coefficient for industrial real estate from 200 per cent to 160 per cent, encouraging commercial banks to lend to more projects in the segment.
![Card image cap](/uploads/news/Eco4.jpg)
GDP GROWTH REACHES 6.42 PC IN FIRST HALF
Vietnam's economy grew by 6.42 pc in the first six months of 2024, slightly lower than the figure of 6.58 pc in the same time of 2022 within the 2020-2024 period.
![Card image cap](/uploads/news/FDI.jpg)
FDI INFLOW INTO VIETNAM REACHES NEARLY 15.2 BILLION USD
Vietnam attracted nearly 15.2 billion USD in foreign direct investment (FDI) in the first six months of this year, a year-on-year increase of 13.1 per cent, according to the General Statistics Office.