Stock Market: Spectacular Growth

2021 was a difficult year for Vietnam's economy and society due to COVID-19 epidemic impacts. For the first time, the economy contracted 6.7% in the third quarter. However, the stock market had a “stunning” performance on the 21-year development journey with new all-time records.

The spectacular growth of Vietnam's stock market in 2021 was reflected by the market capitalization of more than VND7,500 trillion (US$326 billion), over 45% more than at the end of 2020 and approximately equal to the country’s GDP. The primary gauge VN-Index set new records, officially exceeding the 1,500-point benchmark on November 25. Liquidity repeatedly surpassed US$2 billion a day later in the year, with a record of roughly US$2.5 billion a day.

Given low deposit interest rates, securities are increasingly becoming an attractive channel to cash flows from people. The new wave of stock investors is one of strong boosts to the market. Particularly in November 2021, investors opened more than 221,000 new trading accounts, higher than the number in all of 2019 (192,000 accounts).

Vietnam had over 4.08 million securities trading accounts as of November 2021, an increase of more than 1.3 million accounts as compared to late 2020. Thus, stock traders to population approximated 4% - a very good sign for the market as well as the goal of universalizing securities investment in Vietnam.

Improved infrastructure

As liquidity continuously increased, trading order overloading and slow processing occurred on the Hochiminh Stock Exchange (HOSE) from late 2020 to early 2021. This upset and damaged many customers. Even some listed tickers on HOSE had to move to the Hanoi Stock Exchange (HNX) for trading.

As soon as the order jam happened, leaders of the Ministry of Finance (MoF) directed the State Securities Commission of Vietnam (SSC) and HOSE to urgently address this setback. With active and effective coordination and work between HOSE and FPT Corporation, the solution to order congestion was officially put in place from July 5, 2021, and the system has operated smoothly, stably and effectively since then in the face of increased market liquidity. From the troublesome order jam, the SSC found that information technology of market operation, management and monitoring is very important. In the coming time, the SSC will focus on upgrading the system to ensure a stable and smooth market operation.

Vietnam Stock Exchange (VNX) debuts

On December 23, 2020, the Prime Minister issued Decision 37/2020/QD-TTg on establishment, organization and operation of the Vietnam Stock Exchange (VNX) as a one-member limited liability company wholly owned by the government. The organizational and administrative structure of VNX comprises the Board of Members, the General Director, the Supervisory Board and professional divisions. The Board President and the General Director of VNX shall be appointed and dismissed by the Minister of Finance upon the request of the Board of Members. VNX has two wholly owned subsidiaries, namely HNX and HOSE.

On April 1, 2021, the Minister of Finance issued Decision 757/QD-BTC on the organizational and operational charter of VNX with the aim of ensuring that securities trading at the Stock Exchanges is operated publicly, fairly, orderly, safely and efficiently; and protecting legitimate rights and interests of stock investors. On August 6, 2021, VNX was officially operated with HNX and HOSE being its subsidiaries.

After more than four months of operation, VNX has launched professional and other activities under Decision 37 such as formulating and promulgating professional regulations; formulating development plans and strategies; and managing and supervising HNX and HOSE. The SSC reviewed and approved procedures and regulations of VNX within its jurisdiction. On December 11, the Ministry of Finance held the VNX launching ceremony.

Market upgrade expectations

Vietnam's stock market is making efforts and actively exchanging information with market rating agencies, investors and market members in order to know more about new market ranking criteria, policies and activities on the stock market to solve questions and difficulties arising from professional and investment activities of market members and investors.

According to the latest ranking announced by MSCI and FTSE Russell in 2021, Vietnam continued to be assessed for its potential to be upgraded from a frontier market to an emerging market. As the global economy is being affected by the COVID-19 pandemic, both rating agencies highly appreciated Vietnam's recent efforts to adopt solutions for market upgrading.

Vietnam’s activities included periodical policy update and efforts of market regulators; working programs with market members on the stock market development strategy for the 2021-2030 period; new solutions on securities settlement and clearing and central counterparty clearing (CCP) system construction; and a non-voting depository receipt (NVDR) construction. In the coming time, the SSC will further act for market upgrading.

More foreign investment inflows

The Government, the Ministry of Finance, and the State Securities Commission have made great efforts and adopted many solutions to attract foreign fund flows into the stock market, especially from well-reputed institutions with long-term sustainable investment goals through investment funds. In 2020-2021, the SSC granted registration certificates for six domestic ETFs and attracted more than VND20,000 billion of foreign funding bought into domestic ETF certificates, thus helping create stable capital flows for the stock market. Needless to say, these are very good for not only fund management but also for the stock market in general.

On that basis, in 2022, the SSC will continue to implement proposed policies and plans to attract foreign capital flows from effective investment funds. Accordingly, the commission will conventionally foster the development of quality investment fund products to attract foreign investors to make long-term investments in Vietnam, typically via ETFs and open-ended funds. At the same time, the agency will research and develop green securities investment funds to mobilize capital for green and sustainable economic development and woo foreign investors.

To facilitate foreign investors to invest in Vietnam's stock market, especially through investment funds, the SSC will continue to carry out administrative reform and accelerate regulatory improvement for better enforcement of Securities Law to create a strict and unified legal system, ensure a transparent market operation, and protect legitimate interests of the investor community.

On the other hand, the SSC will implement solutions, strengthen information exchanges and establish regular relationships with relevant organizations in order to soon upgrade Vietnam's stock market.

The SSC will also continue to require fund management companies to apply international risk management practices and corporate governance applicable to public companies, improve human resources, and information technology systems to strengthen investors' confidence in trust quality.

In order to reinforce foreign investors' confidence in Vietnam's stock market, the State Securities Commission has stepped up supervision of market players, and imposed strict sanctions on violations in order to toughen market discipline.

By Market Development Department, State Securities Commission