Vietnam Stock Market Restructuring

At the end of 2014, most placed high hopes on strong jumps of the stock market in 2015 as the economy started to recover. Besides, the progress of joining new-generation free trade agreements (FTA) of Vietnam also achieved very positive signals. However, what happened in 2015 was not as expected. Stock market losers outnumbered gainers. Some indices in the region dropped up to 12-14 per cent. European stock markets also slid sharply, with FTSE 100 Index of the England erasing 7.4 per cent in 2015.

 

In 2015, Vietnam's stock market also faced difficulties due to the shift of capital flows on global financial markets. After many considerations, the US Federal Reserve System (Fed) eventually decided to hike interest rates at the end of 2015 and this move left a significant impact on the market sentiment and global investment capital flows as well. According to statistics, more than US$1,000 billion was drawn out of emerging markets in the past two years.

 

Remarkably, the toughest difficulty that the Vietnamese economy and stock market faced was China’s negative economic and stock performances in 2015. China’s yuan devaluation led many countries in the region to make a similar move, with a devaluation magnitude of 12 - 30 per cent. The level of dumping has caused a huge pressure to export activities, trade, investment and capital markets of Vietnam and the world.

 

In recent years, the stock market has always acted as an important fund-raising channel. Together with capital from the banking system, the stock market has created both short-term and long-term capital channel for the country’s economic development.

 

In 2015, due to world economic difficulties, US$540 billion fled from emerging markets, particularly after Fed raised interest rates. Only within two years, more than US$1,000 billion was withdrawn from emerging markets.

 

However, in 2015, Vietnam took very quick measures to encourage foreign capital inflows and restructured the stock market at the same time; thus, capital mobilisation still achieved encouraging results. Fund-raising via the stock market was still good when public stock offerings and auctions jumped 46.6 per cent over 2014. Fund-raising via through stock and bond channels reached VND260 trillion in 2015, equivalent to 2014, despite fleeing pressures from foreign investors.

 

Another bright spot was the increased scale of stock listings in the past year. The total market capitalisation, including UPCoM, equalled to 34 per cent of the country’s GDP at the end of 2015, an increase of 13.4 per cent over 2014. Total listed value, based on par value, increased by 24 per cent.

 

I think the stock market will be difficult in 2016, even more difficult than in 2015. Hence, we must be cautious with market management risks. The SSC defines that the goal in 2016 is not growth but stability of the market before adversely affected factors.

 

The greatest impact will come from estimated continued economic slowdown of China, the second largest economy of the world. As trade relations between Vietnam and China are quite huge, the performance of Chinese economy will affect Vietnam and other countries a great deal. Its impacts on Vietnam will be slow, though they will last longer than in other countries. Therefore, Vietnam needs to have plans to such case.

 

Besides, in addition to very closely monitoring the movement of foreign capital flows to promptly make appropriate solutions, the stock market will also face the risk that global crude oil price will continue to slump and stay at a low level in 2016. This will affect the State budget revenue.

 

With respect to interest rates, if there are no abnormal changes in external factors, continued low inflation will not cause pressures on increase interest rates. However, there may still be pressures on interest rate hike because this helps stabilise the exchange rate. This is one of the decisive factors on the development of the stock market.

 

We determine that we will have to focus on developing and restructuring market pillars in 2016 to enable the stock market function more healthily and efficiently, better mobilise funds, take advantage of opportunities from new-generation free trade agreements, especially Trans-Pacific Partnership (TPP) Agreement. We will also implement measures to increase the size of the market to draw large foreign institutional investors and create better capital sources for investors. Thus, to attract foreign capital flows, we need to adopt such measures as upgrading the market, reforming administrative procedures for foreign investors, and deploying derivatives market. Particularly, we will focus on removing obstacles to the market when we implement Decree 60/2015/ND-CP of the Government.

 

Besides efforts to improve the market class, the SSC will endeavour to scale up the market size by promoting equitisation, listing and transaction registration; accelerating market restructuring in couple with preparing for the deployment of new products; and reforming the UPCoM market to provide a better playground for enterprises after they go public. Companies that fail to meet listing requirements on HOSE and HNX will be listed on UPCoM.

 

We will continue to have directives to Decree 60 to amend and supplement some articles of Decree 58/2012/ND-CP dated July 20, 2012 on detailed instructions to the implementation of some articles of the Securities Law and the Law on Amendments and Supplements to some articles of the Securities Law.