Vietnamese stock market sees remarkable 24-year transformation

The first trading session of the Vietnam stock market was held on July 28, 2000, a week after the establishment of the Ho Chi Minh Securities Trading Centre (now the Ho Chi Minh Stock Exchange, HoSE).

At that time, the market had five listed securities, 32.1 million shares and a market capitalisation of VND986 billion (US$39 million), or 0.28% of GDP.

Over the past 24 years, the stock market has undergone significant development, with substantial growth in areas such as securities supply and demand, organisational operations, market capitalisation and liquidity.

The stock market has seen a significant expansion in the number and variety of traded securities. From just two ticker symbols initially, the market now has 2,183 traded securities, including 1,589 listed and registered stocks, bonds, derivatives, ETFs and covered warrants.

The total volume of listed securities has grown to 237.6 billion securities by May, with stocks accounting for 170.8 billion of that.

The derivatives market has seen strong growth since its introduction in 2017. Products such as VN30 index futures and 10-year and 5-year government bond futures have become effective risk management tools and added diversity to the market.

The VN30 index futures contract has seen impressive expansion, with average annual growth of 38.6% during 2018-2022, including a peak of 79.9% in 2020 and 43.8% in 2022.

As of May 2024, the contract has an average trading volume of 21,900 contracts per session and average value of VND27.2 trillion. Derivative investor accounts reached 1.5 million by the end of 2023.

Meanwhile, the stock market's total capitalisation reached 134.5% of GDP by the first quarter of 2022, on par with the banking credit market.

The market capitalisation alone surpassed the 70% of GDP target set for 2020, reaching 84.1% in 2020 - 2.6 times higher than 2015.

By May, the market cap stood at VND6.9 quadrillion, or 68% of GDP, continuing its strong upward trend from VND5.94 quadrillion at end-2023.

The securities market has become an important capital mobilisation channel for the economy. Capital raised through the securities market from 2011-2020 reached nearly VND2.9 quadrillion, nearly ten times the 2001-2010 period, contributing 19.5% of total social investment.

This has helped restructure Vietnam's financial system to be more balanced and sustainable.

The number and quality of investors, both retail and institutional, domestic and foreign, have increased significantly. As of May, there were over 7.9 million securities accounts registered, 2.9 times the 2020 level and representing 8% of the population. Institutional and foreign investors have also increased.

The active participation of foreign and institutional investors has improved corporate governance practices of listed companies and the market has seen as a launching pad for enterprises to significantly develop in scale and quality.

The securities market has developed with all components - stocks, bonds, and derivatives. The infrastructure, trading, clearing, and settlement systems have been modernised to improve efficiency and liquidity.

In the period from 2010 to the present, the secondary stock market has established three market segments with different capital sizes: HoSE is the listing market for large-scale enterprises, from VND120 billion and above; the Hanoi Stock Exchange (HNX) is the listing bourse for medium and small enterprises, from VND30 billion and above and UPCoM is the trading platform for public companies that have not been listed.

Starting in 2027, HoSE will manage stock and fund trading, while HNX will focus on bonds and derivatives.

Trading operations and oversight have become more professional and modern. Trading has evolved from once-daily, three-days-a-week order matching to continuous order execution since 2008. Investors can now trade online anytime, anywhere, rather than going to securities firms directly. Settlement time has been reduced from T+4 to T+2.

To create a favourable development environment for the market, a robust legal framework is of utmost importance.

The 2006 Securities Law laid the foundation for Vietnam's securities market development by protecting investor interests and aligning with international practices. It established a comprehensive legal framework to strengthen state management and transparency.

The law was amended in 2010 and 2019 to address emerging constraints and keep pace with market evolution and the country's deeper economic integration.

The Securities Market Development Strategy aims to reach nine million accounts by 2025 and 11 million by 2030. The focus is on developing institutional and professional investors, as well as attracting more foreign participation.

In fact, foreign capital inflows into Vietnamese stock market have reversed in recent years.

Since 2024, foreign investors have net sold nearly VND60 trillion on HoSE, exceeding the 2021 record. This has reduced the cumulative net foreign buying value since 2000 to only around VND6.7 trillion.

To attract foreign capital back, a key task is to meet the criteria to upgrade Vietnam's market from frontier to emerging status. The Government and market participants have made efforts to resolve bottlenecks and move closer to this goal.

BIDV Securities JSC (BSC) believes FTSE may consider upgrading Vietnam in its September 2024 review. MSCI also expects Vietnam could be added to its watchlist by June 2025.

An upgrade would open the door to significant inflows from funds tracking the MSCI Emerging Markets index. The MSCI Vietnam Investable Market Index's market cap was estimated at US$32 billion as of May, compared to the US$7.2 trillion MSCI Emerging IMI.