Joint efforts underway for stock market improvements

For the first time in a quarter of a century, the Vietnamese prime minister chaired a conference last week on developing the nations’ stock market.

Managing compliance in the stock market is just one factor that is crucial to preventing violations, Le Toan

Prime Minister Pham Minh Chinh emphasised the government’s commitment to protect the legitimate rights and interests of investors and other stakeholders in the stock market. He expressed desire for the Vietnamese stock market to grow in a healthy, sustainable manner, keeping pace with global trends.

The PM also acknowledged the barriers faced by market participants in recent times and called for collective efforts to accelerate the development of the stock market and achieve significant progress in the next couple of years.

The conference came on the back of a visit at the end of February by a delegation of 14 financial institutions from six countries, led by Maybank Investment Group, including entities managing assets worth hundreds of billions of US dollars, to explore prospects and investment opportunities in the market.

One of the positives for foreign investors is the government’s efforts to upgrade the market to continue attracting foreign investment, according to Nguyen Manh Dung, director of Business and Institutional Clients at Maybank Investment Bank.

“In discussions with members of the Vietnam Stock Exchange, foreign investors praised the open, transparent, and progressive spirit of the Vietnamese government in upgrading and implementing the Korea Exchange (KRX) trading system,” Dung said.

Market upgrade is a keyword that has garnered significant attention from the investor community, with expectations primarily centred around the opportunity for market growth through the influx of new capital from foreign investment funds, resulting in increased liquidity. More importantly, this development could impact and encourage businesses to expedite initial public offerings (IPOs) and listings to capitalise on the vibrancy of the market.

However, there is still much improvement needed with the collaborative efforts of all market participants for Vietnam to gain favour among foreign investors. Many market members note that the major current challenge lies in the IPOs associated with listings to diversify the market further, or the foreign room issue, which requires streamlined procedures.

Refining frameworks

Another challenge for Vietnam’s market upgrade is the disclosure of information coordination between the State Securities Commission (SSC), Ho Chi Minh Stock Exchange, and Hanoi Stock Exchange (HNX) for companies to make information disclosures with a single operation.

Tran Hoang Son, chief market strategist at VPBankS Research, emphasised, “To ensure the effective and sustainable capital mobilisation function of the stock market in the future, regulatory authorities need to prioritise implementing certain solutions.”

Specifically, reviewing and improving the legal framework of the stock market is crucial. While the Law on Securities 2019 was a significant step in refining Vietnam’s stock market’s legal framework, there is still a gap between the law’s provisions and practical implementation, posing challenges to business capital mobilisation.

Son mentioned that regulatory bodies should review and enhance the stock market’s legal framework to balance management goals and enhance market transparency, while ensuring procedural efficiency for businesses and advisory entities.

“Simultaneously, along with constructing and refining the legal framework of the stock market, managing and supervising compliance by market participants is crucial to timely detection and resolution of violations, ensuring that the stock market operates openly, transparently, and fairly for all investor entities,” Son explained.

Secondly, there is a need to increase the quantity and quality of listed companies. Regulatory bodies should focus more on thorough examination of listing registration documents, reviewing files, ensuring legal compliance during capital increases, conducting information disclosures, and company management to ensure the quality of listed commodities, transparency, and openness of the market, Son added. Additionally, conducting checks and post-checks on information disclosed by listed companies is essential for timely detection of errors and violations.

“Furthermore, regulatory authorities should carefully review and comprehensively examine obligations related to information disclosure, company management, the organisation of shareholder meetings, and financial reporting,” Son said. “Information transparency is one of the crucial criteria for upgrading the stock market according to MSCI and FTSE standards. To expedite the market upgrade, we need to enhance both the quantity and quality of businesses.”

Other factors he mentioned included strengthening infrastructure with a long-term perspective, and intensifying the handling of market violations.

Decent prospects

There are high expectations for 2024, anticipating that the US Federal Reserve will reverse its monetary policy, with the earliest interest rate cut expected in the first half of this year. The weakening of the US dollar will alleviate pressure on the exchange rate, affecting the State Bank of Vietnam’s (SBV) policy management, according to Dung of Maybank.

“While US inflation may not cool as quickly as expected, the downward trend is still evident. Moreover, Fed members have agreed to end the tightening cycle and are outlining a roadmap for interest rate cuts from the third quarter onwards. This will play a crucial role in cooling the USD and stabilising the USD/VND exchange rate this year,” Dung said.

Additionally, many other major central banks, such as the Bank of England and the European Central Bank, are predicted to begin interest rate reduction processes this year. This is a supportive factor for global stock markets and enables capital to potentially return to emerging markets, after significant withdrawals from frontier markets post-2023.

Domestically, the stock market continues to be supported by loose monetary policy and sustained expansive fiscal policy. With controlled inflation and reduced exchange rate pressure, the SBV has room to maintain low-interest rates to support economic growth. Therefore, the positive trend persists across many industries and sectors, creating better conditions for the continued recovery of business health.

“Based on assessments from rating agencies and major international financial institutions, Vietnam has made significant improvements and achieved many important criteria. However, there are currently two critical issues that need focused improvement and measures to facilitate foreign investors’ participation in the stock market in the future: pre-funding requirements and foreign ownership limits. These issues require effective collaboration from relevant ministries and agencies to resolve,” Son of VPBankS said.

In terms of obstacles, the global economic growth in 2024, as forecasted by major organisations, remains low, especially in China. Concerns about supply chain disruptions pushing up energy prices, transportation costs, and basic commodity prices may prolong inflation issues, affecting central banks’ interest rate reduction prospects.

In the context of the lingering global economic slowdown, consumer demand from these markets has not yet strongly recovered. Therefore, Vietnam’s production indices, purchasing manager indices, and import-export activities may struggle to make significant improvements, with a slow recovery in consumer spending.

Furthermore, the pressure of maturing bonds will continue to be a challenge for the capital market this year. According to data compiled by the Vietnam Bond Market Association, as of February 23, the total value of corporate bonds maturing in the remaining part of the year is $10.76 billion. Of this, 38 per cent of the bond value about to mature belongs to real estate at around $4.14 billion, followed by the banking group at nearly $2.27 billion, accounting for 21 per cent.

“Currently, real estate enterprises are actively issuing shares at record levels to repay debts and reduce leverage. If successful, this will be a noteworthy boost for the capital market and the real estate market in 2024,” Son assessed.

On March 5, VIR will host a roundtable on stock market foundation, accumulation, and acceleration, and will be attended by state regulatory agencies and leading securities companies in the market.

The roundtable’s content will focus on the factors contributing to a more robust foundation for the market in 2024, trading solutions, new products, and potential investment opportunities. The discussions serve as reference for implementing policies supporting sustainable market development, following the conference on deploying tasks for the development of the stock market in 2024, chaired by the prime minister in February.

South Korean diplomat outlines strategies to enhance Vietnam's stock market In a conference on February 28 to outline the objectives for the development of Vietnam's securities market in 2024, Sang Key Yoon, Commercial Counsellor at the Embassy of South Korea in Vietnam, detailed a vision for bolstering the Vietnamese stock exchange.