Study On The Financial Market In Vietnam Finance Essay
Financial Market of Vietnam depends on the Capital Markets under the operation of two companies, Hanoi Securities Trading Center and Stock Trading Center of Vietnam. The Capital Market consists of Stock Markets and Bond Markets.
Vietnam Financial Market is holding two principal financial institutions: Hanoi Securities Trading Center (Hanoi STC) and Stock Trading Center of Vietnam (STC).
In 2000, the Stock Trading Center of Vietnam was established in Ho Chi Minh City and it’s also called as the Ho Chi Minh City Securities Trading Center with the functions as an authorized body of Vietnam State Securities Commission and will be responsible for supervising the stock trading operations in Vietnam.
Besides that, the Hanoi STC is located in Hanoi Capital and was incorporated in the year 2005, five years after. All buying and selling auctions of bonds and shares will be dealt by this institution.
The STC functions as the prescribed device for issue of government bonds and it also serves as the secondary market for the bonds that have been already issued. National currency of Vietnam Dong will be the denomination of every security that is purchased or sold on the Stock Trading Center.
Vietnam Dong (VND) 10,000 for equities and VND 100,000 for bonds will be the standard face values.
In 1996, the State Securities Commission (SSC) of Vietnam was incorporated with the duties and responsibilities of developing of capital markets in Vietnam, drafting and implementing rules and regulations, and issuing licenses to the participating companies. The International Finance Corporation will assist the blueprinting regulations.
Under the help of an electronic order matching arrangement, the stock trading operations of the STC are carried out. The clearing and closure of transactions is done with the help of the Bank of Investment and Development of Vietnam (BIDV), which is a commercial bank owned by the state.
STOCK MARKETS IN VIETNAM
Vietnam Stock Markets have grown and developed rapidly and been considered as importance sources of financing since the establishment of the first official securities market on July 20th, 2009, with the name of Ho Chi Minh Stock Exchange Center.
In recent years, Vietnam with two stock exchanges, Hanoi Stock Exchange (HNX) in Hanoi and Ho Chi Minh Stock Exchange (HOSE) in Ho Chi Minh City have suffered a violent boom and bust cycle which has undermined confidence of investors.
(HOSE) VN-Index over the years
Source: VN-Index Chart
HNX-Index over the years
Source: HNX-Index Chart
Following the Charts above, we can see at the beginning of 2007, the VN-Index slipped from a peak of 1,173 points to a low of 235 points in February 2009, then it hit over 600 points in a couple following months and declined back to 500 in November 2009. The market is estimated at $39 billion which is equivalent to 43% of GDP in 2009. Currently, the VN-index stays at the position around 434 points, which is slightly higher compared to the regional markets.
There are 191 companies listed on HOSE and 246 companies listed on HNX respectively with the biggest sectors are financials that accounts for nearly 43% of the market size with a capitalization of $16.7 billion. Besides that, consumer goods account for 8% of the market with $3.3 billion, industrials claim almost 9% of the market with $3.4 billion in stock, and the materials take roughly 7 % of the market with $2.8 billion. (Source: State Securities Commission)
The current market is dominated by individual investors that create a high level of short-term and speculative trading. While, there are around 10,000 foreign investor accounts on the market, and about 1.000 from institutional investors. They accounted for 20% of the market size with a combined portfolio value of $7.6 billion. Approximately 20 companies are traded on the market of unlisted public companies (UPCOM), while an additional 963 companies with outside shareholders have registered with the State Securities Commission of Vietnam (SSC), making them potential candidates for trading on UPCOM. The market’s high corporate governance standards and stringent disclosure requirements have discouraged many of these companies from joining UPCOM. In addition, more than 3,600 other companies’ stocks are traded informally, without any regulation or supervision. The relatively small size of Vietnam’s stock exchanges and prevalence of informal trading illustrate the nascent state of the country’s stock market as well as its potential for growth. (Source: State Securities Commission)
BOND MARKET IN VIETNAM
The Vietnam Bond Market development was boosted strongly when Vietnam entered WTO in 2006. In the past few years, Vietnam’s Government bond market has contributed to the development of Vietnam’s stock market considerably. Besides the balance in the structure of the securities market created, the bond market has made remarkable developments and become a commodity at the selection of investors.
Vietnam’s Government has performed many measures involving both primary and secondary markets. On the primary market, policies are focused on issuance, macro-economy and debts. Meanwhile, on secondary market, legal corridor, infrastructure and market participants are paid attention to.
As the only agent assigned to operate the secondary market and organize biddings of Government bonds, Hanoi Stock Exchange (HNX) has co-operated with organ agents in implementing measures for the development of Vietnam’s Government Bond Market.
There are 3 types of bond: The first one is Government bonds which are issued by the State Treasury and authorized issuers such as Development Bank (policy bank), the second one is Municipal bonds, issue by city municipalities and provincial governments, the last one is Corporate bonds that are issued by SOE’s and private enterprises.
Bond Market Chart
Source: Dragon Capital
Most of the listed bonds are government bonds, with an average of 3.5 years to maturity. As the chart above, we can see the State Treasury and Vietnam Development Bank (VDB) accounted for 41 % and 31 %, while the Municipal and corporate bonds accounted for 5% and 23%. Long-term government bonds are auctioned on HNX, while the State Bank of Vietnam (SBV) auctions short-term government bonds. SBV typically announces new issues of government bonds a few days before the auction. In addition, ministries and local government can issue project bonds, which can be listed on HNX, to finance special projects. Currently, the secondary market is still thin and illiquid.
The corporate bond market offers huge financing potential for Vietnamese companies. Since the beginning of the year 2010, many corporations have successfully issued long-term bonds totaling trillions of dong. Some of the notable issuances include Kinh Bac City Development Share Holding Corporation’s VND1,200 billion listing, The Corporation for Financing and Promotion Technology’s VND1,800 billion listing, and Hoang Anh Gia Lai Joint Stock Company’s VND1,450 billion listing. On November 16th 2010, Vincom Joint Stock Company, one of Vietnam’s largest listed property companies, successfully priced a $100 million convertible bond offering, representing the first offshore corporate bond issuance by a Vietnamese company. (Source: Government Bond Market)
This landmark transaction opens up a new avenue through which Vietnamese companies can raise funds in the global capital markets. The bonds, which are convertible into ordinary Vincom shares, will be the first such listing for Vietnamese securities at the Singapore Exchange. Bond issuance is an attractive option for Vietnamese companies. Corporate bonds are viewed as highly liquid and profitable investments, often offering attractive coupon rates and flexible conditions. Accordingly, issuing corporate bonds is regarded as the most effective way for Vietnamese companies to attract capital under current market conditions. Despite the benefits of corporate bonds as an investment vehicle, it is difficult for investors to evaluate corporate bonds since the country’s credit rating system is not yet standardized.
SIMILARITY AND DIFFERENCES BETWEEN STOCK MARKET AND BOND MARKET IN VIETNAM
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