(28) Will Vietnam Stock Market Soar?

Recently, the Vietnamese stock market has been soaring. The Ho Chi Minh City Stock Exchange index, equivalent to Korea's KOSPI, reached 1276.6 points on April 12, up 13% from the beginning of the year. In contrast, the KOSPI index grew by only 1% during the same period. Vietnamese funds investing in major Vietnamese stocks and ETFs tracking the Vietnamese stock market index also saw returns of over 12% from the beginning of the year, further increasing the interest of domestic investors.

After the COVID-19 pandemic, individual investors actively participated in the stock market, causing a surge in stock prices. In 2021, the number of new securities accounts opened by Vietnamese individual investors reached record highs each month, and in January 2022, the stock market index also reached a record high of 1536.45 points, up 25% from the previous year. However, in March 2022, the FLC Group, a major real estate company and operator of the private airline Bamboo Airways, faced a stock manipulation scandal involving its chairman. Subsequently, in October 2022, the chairman of Van Thinh Phat, Vietnam's largest real estate developer, was arrested for illegal bond issuance, causing the rapidly growing Vietnamese stock market to falter. As a result, on November 16, 2022, the Vietnamese stock market index plummeted by 43% from its peak to 873.78 points. Although the Vietnamese stock market has recovered somewhat due to its resilience, it has remained stagnant for a while.

Actively attracting foreign investment funds

The Vietnamese government has been actively involved, reigniting the recent fervor in the Vietnamese stock market. In October 2023, Prime Minister Pham Minh Chinh publicly requested the Securities and Exchange Commission to verify whether the national population database and the personal information of stock traders matched, and to rectify any discrepancies. This move aimed to identify stock manipulation cases during the stock market boom and develop countermeasures. In response to the Prime Minister's request, Vietnamese securities firms massively deleted a total of 710,000 accounts that could be used for stock manipulation, including dormant, duplicate, and mismatched customer accounts, over the two months of October and November. Vietnamese securities firms also introduced the eKYC (Electronic Know Your Customer) online customer authentication service to accelerate the authentication process. The Vietnamese stock market index plummeted by 11% in October last year, following the large-scale cleanup of dormant accounts. This raised concerns that the recent stock market surge might have been driven by stock manipulation. However, in November of the same year, the Vietnamese stock market recovered, rising by 6.4%, and by December, it had returned to levels before the dormant account cleanup.

Furthermore, the Vietnamese government announced the 'Stock Market Development Strategy' on December 13 last year, aiming to boost the Vietnamese stock market. As of the end of 2023, the total market capitalization of the Vietnamese stock market was US$240 billion, equivalent to 56% of GDP. The target is to increase the total market capitalization of the Vietnamese stock market to 100% of GDP by 2025 and 120% of GDP by 2030. The number of stock traders, which was 7.3 million in 2023, is projected to reach 9 million by 2025 and 11 million by 2030. To attract more foreign investment funds to the Vietnamese stock market, the government aims to upgrade the Vietnamese stock market, currently part of the MSCI (Morgan Stanley Capital International) and FTSE (Financial Times Stock Exchange) frontier markets, to an emerging market by 2025. If successful, this move is expected to attract billions of dollars in passive funds that track the index. Currently, the Vietnamese stock market accounts for 29% of the MSCI market frontier index and 38% of the FTSE Russell frontier index. Since 2019, FTSE has maintained Vietnam as a subject of observation for upgrading the market from a frontier market to an emerging market. Some analysts believe that the Vietnamese stock market, which has been growing rapidly, is too large to remain in the frontier market category.

At a Vietnam Stock Market Development Conference held in Hanoi on February 28, Ketut Ariadi Kusuma, head of the World Bank's Finance, Competitiveness, and Innovation Group, predicted that upgrading the Vietnamese stock market to an emerging market could attract US$25 billion (approximately KRW 35 trillion) in new investment by 2030. The Vietnamese government is actively promoting this to foreign investors and encouraging investment.

However, there are obstacles to achieving the government's plan. First, there are limits on foreign investment in Vietnamese companies. The foreign ownership limit for commercial banks is 30%, leading to complaints from foreign investors. The State Bank of Vietnam is considering a limited application of a 49% foreign ownership limit to three restructured banks, but a full-scale expansion is unlikely. Despite the removal of the 49% foreign ownership limit for listed companies, many companies still restrict foreign ownership to 0%, disappointing foreign investors. Other issues include the lack of English-language disclosures by companies for foreign investors and the delayed implementation of IFRS (International Financial Reporting Standards) for listed companies, which is scheduled for 2025. Providing transparent information to foreign investors, who have limited information about Vietnam, is essential, but Vietnamese companies are not yet fully prepared to attract foreign investment.

Another concern is the government's failure to meet its own timelines. The Ho Chi Minh City Stock Exchange, despite signing a US$24.3 million contract with the Korea Exchange in 2012 to address system overload, order errors, and other issues related to its aging trading system, has yet to fully implement the new system. While the Korea Exchange system was repeatedly promised for implementation in December 2023, the local securities firms' lack of preparation has delayed the system's launch. After several attempts, a trading order test was conducted from April 11 to 15, 2024, to verify the settlement order execution, but full operation is still pending.