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Stock market gaining robust foundation
The Vietnamese stock market is converging various elements conducive to its growth, marked by positive shifts in terms of both quality and quantity.
Experts last week noted progressive improvement in legal frameworks in Vietnam in regards to the stock market, creating conditions to propel it forward. Pham Thi Thuy Linh, deputy head of the Market Development Department at the State Securities Commission (SSC), told a VIR roundtable on March 5 that the SSC is collaborating with various ministries and sectors to achieve the goal of upgrading the market.
Vietnam aims to upgrade the stock market from the frontier to the secondary emerging market status. As for the upgrade conditions, Vietnam currently meets seven out of nine criteria. The two remained criteria involve the pre-transaction escrow by foreign investors and the foreign investor ownership ratio.
“The SSC is actively refining these two conditions. Firstly, regarding the pre-transaction escrow by foreign investors, we have engaged in discussions with international rating agencies to find solutions. The SSC has proposed amendments to certain documents to initially waive the requirement for a 100 per cent reserve in cash for organised foreign investors, ensuring foreign investment and payment activities,” Linh said.
Secondly, concerning the foreign investor ownership ratio, the SSC is working alongside the Ministry of Finance and the Ministry of Planning and Investment to review sectors, possibly expanding the foreign investor ownership ratio in non-essential sectors. Simultaneously, they are implementing English-language transparent disclosures for investors to easily grasp ownership ratios of companies.
According to experts, Vietnam is currently on the verge, poised near the threshold of upgrading the market, and the qualitative shift in the legal framework is undergoing a discernible transformation, ensuring compliance with the criteria set by international organisations for Vietnam.
With efforts to enhance upgrade criteria, the stock market is anticipated to take a significant step forward with the anticipated launch of the Korea Exchange (KRX) trading system later this year.
Linh of the SSC mentioned that the system is currently being implemented at securities companies, meanwhile, the Vietnam Exchange and the Central Securities Depository are conducting trial tests. The KRX system will be put into operation immediately upon successful testing.
“Investors are hopeful that the official operation of the KRX will make a significant impact on the market in terms of liquidity and product offerings. The existing trading system has experienced several order congestions issues, so the infrastructure upgrade is needed to ensure smoother transactions,” Linh said.
It is expected that in the coming time, the new trading infrastructure will help investors trade faster, many organisations can trade automatically. In addition, the trading time will be shortened, and there will be many new products. The future not only involves derivatives in stock indices, but also derivatives in individual stocks.
In addition to internal factors, the stock market is also fuelled by growth dynamics from positive macroeconomic information. Vietnam’s economic growth target for 2024 is set at 6-6.5 per cent. The three economic growth drivers identified by the government in 2024 are investment, exports, and consumption.
“The macroeconomic picture is showing signs of recovery: exports in the first two months of the year increased by 20 per cent, industrial production indices also grew, and foreign direct investment remains strong. These are factors impacting the stock market beyond interest rate issues,” said Pham Huyen Trang, director of stock analysis at SSI Securities.
In terms of consumption, the global economic recovery brings good prospects for Vietnam’s economy. Currently, the total retail sales of goods and service revenues in the first two months of 2024 are estimated to have seen an 8.1 per cent increase compared to the same period last year.
The stock market has also grown by 12 per cent since the beginning of the year, a promising growth rate that reinforces investor confidence, Trang noted. Besides this, the continuous interest rate reductions by the State Bank of Vietnam and the inflow of funds into the domestic stock market have been more positive since the third quarter of 2023.
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