Vietnam stock market remains efficient capital mobilization channel despite recent plummets
The government’s strong push for privatization and divestment in 2019 would present new opportunities for Vietnam’s stock market.
Vietnam's stock market in 2018 remained an efficient capital mobilization and contributed significantly to the overall growth regardless of recent plunges in local shares, according to Tran Van Dung, chairman of the State Securities Commission (SSC), the country's stock market watchdog.
Chairman of SSC Tran Van Dung.
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In 2018, Vietnam’s stock market capitalization reached VND3,960 trillion (US$171 billion), up 12.7% against the end of 2017, and equivalent to 79% of GDP in 2017 and 72% GDP in 2018. The result has exceeded the 70%-of-GDP target set for 2020.
However, the local stock market's size remained small compared to those in the region, including Thailand with US$548 billion, Malaysia US$456 billion and Singapore US$787 billion, which are both over 100% of their respective GDP, Dung added.
Market trading liquidity climbed 29% year-on-year in terms of transaction value, reaching VND6.54 trillion (US$282.46 million) per session, he added.
Vietnam’s bond market also saw a strong growth in 2018, reaching VND1,122 trillion (US$48.27 billion), up 10.4% against the end of 2017. Of the total, government bonds made up 98% of the total value and corporate bonds the remaining.
Moreover, the ratio of outstanding bonds as per GDP reached 35.2% in 2018, of which the outstanding government bonds accounted for 27.2% of the GDP and corporate bond 8%. The rate is quite low compared to regional countries, such as Malaysia with 97.7% of the GDP, Singapore 86%, South Korea 125.7% and Japan 211.4%.
Dung warned external factors would pose potential risks to Vietnam’s stock market in 2019, including the negative impact from Fed’s future rate hikes and the ongoing US – China trade friction.
Last year, an escalation of the trade war prompted global investors to pull money out of emerging markets, including Vietnam. This issue could become more problematic in 2019 due to Vietnam’s high level of economic openness, Dung stated.
New opportunities in 2019
In 2019, the government identified institutional reform and the development of the private sector as priorities, for which a stable macro-economic fundamental and stock market would prove vital for the cause, Dung continued.
The issuance of government’s Resolution No.01 on key socio-economic development plan in early 2019 addresses the necessity for strong growth of Vietnam stock market, focusing on privatizing state-owned enterprises and their subsequent listings.
It is expected that the government’s strong push for privatization and divestment in 2019 would present new opportunities for Vietnam’s stock market, Dung stressed.
To support the stock market development, the SSC would give priority to the completion of the revised Securities Law in 2019 and facilitating the establishment of Vietnam Stock Exchange by merging Hanoi and Ho Chi Minh City Stock Exchanges. Dung also hinted at possible introduction of new financial products, including covered warrant and bond future in 2019.
In terms of market upgrade, the SSC would ensure that Vietnam is on track to be upgraded from the status of frontier market to secondary emerging market, following its addition to the watch list for possible upgrade of FTSE Russell last September, Dung added.
Dung previously said he expected Vietnam to achieve the target in the next two years.
Similarly, local brokerage Viet Dragon Securities Company predicted that Vietnam could be upgraded to the emerging market status in 2020, if the country can maintain high level of development throughout the ongoing review year.
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