Introduction
Vietnam's equity market has thrived due to the country's robust economic growth, averaging around 7% GDP annually over the past decade, with a peak of 8.5% in 2007 Additionally, the rapid equitization of state-owned enterprises (SOEs) has significantly contributed to this growth Over the last ten years, the Vietnamese stock market has evolved rapidly, attracting increasing amounts of foreign capital, which has provided essential funding for listed companies and fostered strong market development.
Before 2005, the influence of foreign investors in the Vietnamese stock market was minimal due to the market's nascent stage and limited appeal However, 2006 marked a significant turning point, with foreign ownership surging from 6% to 17%, and reaching 30% by the end of 2007 Since then, foreign investment in the Vietnamese stock market has consistently remained at a high level.
The Vietnamese stock market is an emerging market that increasingly captivates foreign investors, who significantly contribute to its development and the overall growth of the economy.
Over the last decade, foreign investors have significantly influenced the Vietnamese stock market and contributed to the country's economic growth They provide essential capital for listed companies, facilitating production and technological innovation Additionally, foreign investors enhance the credibility of these companies and bring valuable management, investment, and corporate governance expertise to Vietnam.
Pallathiatta and Kabir (2006) examined how foreign institutional investment influences the performance of emerging market firms, revealing a positive correlation between foreign ownership and firm performance Consequently, identifying the key indicators that affect foreign investors' holding decisions is crucial for attracting increased levels of foreign investment in the future.
According to the article International Investing on the website of the U.S Securities and Exchange Commission, there are two main reasons why people invest internationally
A successful investment approach involves two key strategies: first, a diversification strategy that mitigates risk by spreading investments across various foreign companies and markets distinct from the U.S economy; second, a growth strategy that capitalizes on the growth potential found in certain foreign economies, especially in emerging markets.
Foreign investors seek to diversify their portfolios by targeting emerging markets known for rapid growth However, they prioritize the stability of government monetary policies, including interest rates, exchange rates, inflation, and the political climate, to mitigate potential risks when repatriating profits Additionally, the characteristics of listed companies, such as ownership and financial structures, stock performance, and risk of expropriation, play a crucial role in their investment decisions Furthermore, ethical, moral, strategic, national, or cultural factors may influence their choice of countries and companies to invest in or avoid Understanding these criteria is essential for attracting more capital to the Vietnamese equity market, particularly at the Hochiminh Stock Exchange.
Research objectives
Knowing the role of foreign investors for Vietnamese stock market and economy, the objectives of this research are:
- To identify, rank, and test the significance of which main listed firms' financial indicators affect to foreign investors' holding decisions with respect to the Hochiminh stock exchange;
Analyzing the growth patterns of the VN Index in relation to indices like the Shanghai Index and the Dow Jones Index reveals key insights into foreign investment trends in Vietnam's stock market Understanding these correlations can shed light on the factors driving foreign investors to choose Vietnam as a viable investment destination By comparing these indices, we can identify the economic conditions and market dynamics that attract international capital to Vietnam, highlighting its potential for growth and stability in the global market.
- To generate practical recommendations for listed firms to attract more foreign investors into Vietnamese stock market
The research limits its research scope to the Hochiminh Stock Exchange which is the largest stock exchange in Vietnam.
Research questions
To attain above objectives, the study will answer following questions:
Is there any relationship between foreign investors' holding at listed firms with their financial indictors?
Do foreign investors invest into the firm's value or just speculate?
Is there a correlation in pattern growth between VN Index and other indices?
Answering the above questions permits listed firms to have suitable policies in their business process to attract even more foreign investors, contributing for development of the Vietnamese equity.
Structure of the thesis
This paper is structured to provide a comprehensive analysis of the Vietnam stock market, highlighting the evolution of the Hochiminh Stock Exchange and the role of foreign investors in Chapter 2 A concise literature review is presented in Chapter 3, followed by an exploration of the panel data model and research methodologies in Chapter 4, which also includes a detailed description of the dataset used Chapter 5 outlines the research findings, while the thesis concludes with key insights and policy implications.
Background
The Vietnam Securities Market was officially established with the launch of the Hochiminh City Securities Trading Center (HoSTC) on July 20, 2000, which held its inaugural trading session on July 28, 2000.
In 2007, HoSTC transitioned to the Hochiminh Stock Exchange (HOSE), marking a significant milestone in its development Regulated by the Securities Law, Business Law, and the Charter of HOSE, this transition enhanced HOSE's standing in both regional and international stock exchanges.
The development of the Ho Chi Minh Stock Exchange (HOSE) has mirrored the fluctuations of the economy, benefiting from a robust GDP growth rate of approximately 7% per year Key events, such as Vietnam's accession to the World Trade Organization (WTO) and President George W Bush's visit in late 2006, catalyzed rapid stock market growth In 2007, the market experienced a surge in the number of listed companies and the introduction of a new Securities Law However, since the onset of the global financial crisis in 2008, the stock market has encountered significant challenges, including a steep decline in stock prices, a tight budget, trade deficits, and soaring inflation, which reached a two-decade high of 23% that year, leading to decreased economic growth and substantial impacts on the Vietnamese stock market.
Achievements
Through 1 0 years of establishment and growth, the Vietnam Securities market experienced lots of ups and downs However, the most important in the period of conformation, establishment and development, the stock market always receives deep interests of the Party and Government and thorough instructions from the Ministry of Finance (MoF) and the State Securities Commission (SSC)
The Vietnam Securities Market, as indicated by the VN Index, has experienced significant growth since its inception, serving as a key economic indicator From a low of 307.5 at the end of 2005, the VN Index surged to 809.86 by December 20, 2006, closing the year at 753.81, marking a remarkable increase of 145.14% The index continued its upward trajectory, reaching a peak of 1170.67 on March 12, 2007, before undergoing substantial fluctuations, dipping below 250 in early March 2009, and currently stabilizing around 500 This volatility is characteristic of emerging markets, including Vietnam's.
The 10-year journey of HOSE marks a significant milestone in the successful establishment of the Vietnam Stock Market, serving as a vital financial institution that addresses the growing demands for development and integration into the global economy.
Accounting to March 28th, 2009, HOSE successfully performed 2000 sessions Total trading volume of securities reached over 5.7 billion, valued 482,000 billion VND, averagely 255 billion per session
As of Dec 31st, 2008, the market capitalization on HOSE approximately was 162,000 billion VND, or 12.28% ofGDP
Followed by HOSE's coming into being there were a varietY of securities firms and unit trusts From 7 member firms in 2000, HOSE possessed 95 member firms in March
2009, with chartered capital of 16,000 billion VND in total
The Ho Chi Minh Stock Exchange (HOSE) has emerged as a vital source of capital for the economy, starting with the initial listings of Refrigeration Electrical Engineering Corporation (REB) and Sacom Development and Investment Corporation (SAM) As of March 30, 2009, HOSE featured 177 stocks, 4 fund certificates, and 83 bonds, culminating in a total of 6,306.56 million issued securities This includes 5,904.96 million stocks, 252.05 million fund certificates, and 149.54 million bonds, with a combined listing value of 76,640 billion VND.
As of now, the Hochiminh Stock Exchange has successfully conducted over 200 auctions, raising more than 50 trillion VND This includes initial public offerings from various prominent groups, corporations, and enterprises across key sectors of the economy, such as Bao Viet Holdings, Petro Vietnam Finance Joint Stock Corporation (PVFC), Petro Vietnam Fertilizer and Chemicals Corporation, and Vietcombank.
Industry and Trade (Vietinbank), so on, marking the process of privatization with big materialistic changes
(Source: Summarize from Hochiminh Stock Exchange)
Several companies listed on the Ho Chi Minh Stock Exchange (HOSE) have attracted interest from international investors and are preparing to raise capital through listings on foreign stock exchanges Notably, Vietnam Dairy Products Joint Stock Company (VNM) made history as the first Vietnamese enterprise to conduct share auctions and achieve a listing on an international stock exchange.
Between 2001 and 2008, the number of registered accounts in member firms skyrocketed from 8,774 to 510,000, reflecting an impressive average annual growth rate of 110% Notably, domestic investors comprised 97% of these accounts, while foreign investors, despite making up only 3%, contributed 14% of the total trading volume (Source: Hochiminh Stock Exchange)
The stock market has promoted and supported the equitization of businesses in order to improve competitiveness, and publicize market information
Member firms have actively consulted for equitization, listing, issuance and auctions These activities have boosted cargo supplies for the stock market and the exploitation of company potential
The achievements and failures experienced by companies, particularly in 2008, serve as valuable lessons for evaluating potential, reforming operations, and enhancing productivity Additionally, both foreign and local investors can gain insights that inform their investment strategies.
Foreign investors in the Vietnamese stock market
According to Vietnamese law, foreign investor can hold a maximum 49% of listed shares of a listed company and this number of commercial banks is just 30%
Foreign investors are increasingly significant in Vietnam's stock market, comprising both institutional and individual participants As of the end of 2010, there were over 13,000 individual foreign investor accounts and around 800 organizational accounts at securities firms that are members of HOSE, compared to more than 1 million individual domestic accounts and 3,500 organizational accounts Despite this disparity, foreign investors contribute approximately 10 percent of the total market trading value, often driving market increases through their purchases The majority of these foreign investors hail from countries such as Japan, Thailand, Taiwan, Korea, China, and the United States.
Foreign investors have significantly increased their trading activity in the Vietnamese stock market, becoming net buyers in every year analyzed Notably, 2007 marked a peak with nearly 170 million shares purchased and a net investment of 23 billion dong However, the global financial crisis in 2008 led to challenges for the market, resulting in reduced trading volumes from foreign investors in 2009 and 2010 Despite an increase in the number of shares traded, the overall trading value for foreign investors declined sharply due to falling stock prices.
Figure 2.1 Trading volume of foreign investors by years
Trading activities of foreign investors by years
Source: Summarize from Annual Reports 2008, 2009, 2010 of HOSE
Figure 2.2 Trading value of foreign investors by year
Trading activities of foreign investors by years
~~ ~ F R-squared Adj R-squared Root MSE
- fo I Coef Std Err t P>ltl [95% Conf Interval]
-+ - roe 1 -65.80876 17.37219 -3.79 0.000 -99.94555 -31.67198 eps 1 -.0895793 1936084 -0.46 0.644 -.4700245 2908659 pe 1 -.0007491 0109991 -0.07 0.946 -.0223627 0208645 logsize I 4.639032 4887111 9.49 0.000 3.678703 5.599361 lev I -3.098772 9703773 -3.19 0.002 -5.005587 -1.191958 cons 1 3.913431 3.082494 1.27 0.205 -2.143745 9.970606
Table 4 Random-effects at the company level xtset companyiD yearl panel variable: time variable: delta: companyiD (unbalanced) yearl, 2006q2 to 2010q2
xtreg fo roe eps pe logsize lev, re
Random effects u i - Gaussian corr(u_i, X) = 0 (assumed)
Number of obs = 476 Number of groups = 30
Obs per group: min = 9 avg = 15.9 max = 17
Wald chi2(5) = 16.69 Prob > chi2 = 0.0051 fo I Coef Std Err z P>lzl [95% Conf Interval]
-+ - roe I -38.21862 12.16796 -3.14 0.002 -62.06739 -14.36985 eps I -.0635653 1421146 -0.45 0.655 -.3421048 2149743 pe I -.0050069 00709 -0.71 0.480 -.0189031 0088893 logsize I 2.560102 7810325 3.28 0.001 1.029306 4.090897 lev I 9998136 9539387 1.05 0.295 -.8698719 2.869499 _cons I 13.30485 5.628459 2.36 0.018 2.273278 24.33643
-+ - sigma_u 1 11.461302 sigma_e I 8.9349025 rho I 62199443 (fraction of variance due to u_i)
Table 5 Breusch-Pagan Lagrange Multiplier (LM) Test with Random-Effects at the company level
Breusch and Pagan Lagrangian multiplier test for random effects fo[companyiD,t] = Xb + u[companyiD] + e[companyiD,t]
Table 6 Random-effects at the year level year1 (unbalanced) xtset year1 companyiD panel variable: time variable: delta: companyiD, 1 to 30, but with gaps
xtreg fo roe epa pe logsize lev, re
Random-effects GLS regression Number of obs
Group variable: year1 Number of groups
R-sq: within 0.1937 Obs per group: min between 0.1699 avg overall 0.1892 max
Random effects u i - Gaussian Wald chi2(5) corr(u i, X) 0 (assumed) Prob > chi2
110.69 0.0000 fo I Coef Std Err z P> I z I [ 95% Conf Interval]
-+ - roe -62.20565 17.45579 -3.56 0.000 -96.41836 -27.99293 eps -.08491 1927469 -0.44 0.660 -.462687 292867 pe -.0000975 0109626 -0.01 0.993 -.0215838 0213887 logsize 4.675104 4888759 9.56 0.000 3.716925 5.633283 lev -3.105218 9659658 -3.21 0.001 -4.998476 -1.21196 cons 3.465322 3.106642 1.12 0.265 -2.623585 9.554228
-+ - sigma u 1.6286413 sigma=e I 14.15891 rho I 01305818 (fraction of variance due to u_i)
Table 7 Breusch-Pagan Lagrange Multiplier (LM) Test with Random-Effects at the year level
Breusch and Pagan Lagrangian multiplier test for random effects fo[yearl,t] = Xb + u[yearl] + e[yearl,t]
Table 8 Fixed-effects at the company level xtset companyiD yearl panel variable: time variable: delta: companyiD (unbalanced) yearl, 2006q2 to 2010q2
xtreg fo roe eps pe logsize lev, fe
Number of obs Number of groups
R-sq: within 0.0253 Obs per group: min between 0.1674 avg overall 0 1136 max
2.29 0.0452 fo I Coef Std Err t P>ltl [95% Conf Interval]
-+ - roe I -36.01381 12.20965 -2.95 0.003 -60.01013 -12.01749 eps I -.0657222 1427163 -0.46 0.645 -.3462107 2147664 pe I -.0047923 0070751 -0.68 0.499 -.0186975 0091129 logsize I 1.836663 9017427 2.04 0.042 0644155 3.60891 lev I 1.369604 9825209 1.39 0.164 -.5614007 3.300609 cons I 17.9681 6.02795 2.98 0.003 6.121016 29.81517
-+ - sigma u 1 12.628213 sigma=e I 8.9349025 rho I 66639754 (fraction of variance due to u_i)
The Hausman Test was conducted using fixed-effects at the company level, employing the command `xtset companyiO yearl` The fixed-effects model was estimated with `xtreg fo roe eps pe logsize lev, fe`, and the results were stored as "fixed." A random-effects model was also estimated using `xtreg fo roe eps pe logsize lev, re`, with results stored as "random." The Hausman Test was then performed to compare the fixed and random effects, yielding significant results with the command `bausman fixed random, sigmamore`.
(b) (B) (b-B) sqrt(diag(V_b-V_B)) fixed random Difference S.E
-+ - roe 1 -36.01381 -38.21862 2.204806 1.483229 eps 1 -.0657222 -.0635653 -.0021569 0182513 pe 1 -.0047923 -.0050069 0002146 0004319 logsize I 1.836663 2.560102 -.7234391 4578052 lev I 1.369604 9998136 3697908 2510264 b = consistent under Ho and Ha; obtained from xtreg
B = inconsistent under Ha, efficient under Ho; obtained from xtreg Test: Ho: difference in coefficients not systematic chi2(5) Prob>chi2
Table 10 Fixed-effects at the year level xtset yearl companyiD panel variable: yearl (unbalanced) time variable: companyiD, 1 to 30, but with gaps delta: 1 unit
xtreg fo roe eps pe logsize lev, fe
Number of obs = Number of groups =
Obs per group: min = avg = max =
21 97 0.0000 fo I Coef Std Err t P>ltl [95% Conf Interval]
-+ - roe 1 -51.50278 18.0211 -2.86 0.004 -86.9179 -16.08767 eps 1 -.0742688 1937212 -0.38 0.702 -.4549704 3064327 pe 1 0020243 0110514 0.18 0.855 -.0196939 0237426 logsize 1 4.783245 4988187 9.59 0.000 3.802965 5.763525 lev I -3.131287 9724178 -3.22 0.001 -5.042286 -1.220289 _cons I 2.138337 3.144113 0.68 0.497 -4.040482 8.317157
-+ - sigma u I 3.572621 sigrna:=e I 14.15891 rho I 05985612 (fraction of variance due to u_i)
The Hausman Test was conducted using fixed-effects at the year level, employing the commands `xtset year companyID` and `xtreg fo roe eps pe logsize lev, fe` to store fixed estimates Subsequently, random effects were estimated with `xtreg fo roe eps pe logsize lev, re`, and the results were stored as random estimates The final analysis utilized the `bausman fixed random, sigmamore` command to compare the fixed and random effects models.
(b) (B) (b-B) sqrt (diag (V_b-V_B)) fixed random Difference S.E
-+ - roe -51.50278 -62.20565 10.70287 4.828492 eps -.0742688 -.08491 0106412 0274433 pe 0020243 -.0000975 0021219 0017835 logsize 4.783245 4.675104 1081407 1109835 lev -3.131287 -3.105218 -.026069 1483085 b = consistent under Ho and Ha; obtained from xtreg
B = inconsistent under Ha, efficient under Ho; obtained from xtreg Test: Ho: difference in coefficients not systematic chi2(5) Prob>chi2
Table 12 Two-way Fixed-effects with both year and company
areg fo roe eps pe logsize lev yl-y17, a(companyiD) note: y1 omitted because of co1linearity
Linear regression, absorbing indicators fo I Coef Std Err t P>ltl
-+ ~ - roe -9.101029 11.83249 -0.77 0.442 -32.35852 14.15647 eps 012208 1327514 0.09 0.927 -.248723 273139 pe -.0022064 0065461 -0.34 0.736 -.0150733 0106604 logsize 4.194981 1.234392 3.40 0.001 1.768708 6.621254 lev 2.983368 9362803 3.19 0.002 1.143052 4.823685 y1 (omitted) y2 2.882272 2.437005 1.18 0.238 -1.907812 7.672356 y3 2.856032 2.405453 1.19 0.236 -1.872033 7.584097 y4 1.355888 2.563344 0.53 0.597 -3.682521 6.394298 y5 5.087504 2.549964 2.00 0.047 0753933 10.09961 y6 6.500309 2.63296 2.47 0.014 1.325064 11.67556 y7 6.27195 2.69413 2.33 0.020 9764712 11.56743 y8 9.774166 2.44204 4.00 0.000 4.974186 14.57415 y9 12.69899 2.381669 5.33 0.000 8.017671 17.38031 y10 9.998351 2.397811 4.17 0.000 5.285305 14.7114 y11 I 8.990413 2.435015 3.69 o.ooo 4.204241 13.77658 y12 I 8.425468 2.460689 3.42 0.001 3.588833 13.2621 y13 I 3.840422 2.459306 1.56 0.119 -.9934946 8.674339 y14 I -.1970788 2.54591 -0.08 0.938 -5.201221 4.807063 y15 I -.507663 2.531278 -0.20 0.841 -5.483045 4.467719 y16 I -1.021746 2.518529 -0.41 0.685 -5.97207 3.928578 y17 I -.5135799 2.494698 -0.21 0.837 -5.417063 4.389903 cons I -5.365481 7.967685 -0.67 0.501 -21.02646 10.29549