(Luận văn HV chính sách và phát triển) conclusions and policy suggestions

Examining factors affecting stock market performance in Vietnam Abstract ―This paper tests whether innovations in macroeconomic variables are risks that are rewarded in the stock market Financial theory suggests that the following macroeconomic variables should systematically affect stock market returns: the spread between expected and unexpected inflation, GDP, FDI, exchange rate and money supply We find that these sources of data are significantly influence on VN-Index.‖ Introduction ―In Vietnam, the change of macroeconomic policies often happens suddenly, thus affecting the psychology of investors, the stock market (stock market) and the general activities of the economy Therefore, analyzing the impact of macroeconomic factors on the economy in general and the stock market in particular is a necessary and useful thing When identifying macroeconomic factors affecting the stock market, it will contribute to solutions to overcome when there are negative impacts of macroeconomic factors on the stock market as well as help develop appropriate stock market with the economic situation.‖ ―This study aims to measure the impact of six macroeconomic factors including: inflation (represented by consumer price index), M2 money supply, VND / USD exchange rate, inflation, total trading volume, gross domestic product and foreign direct investment to stock price indexes are being applied at Vietnam Stock Exchange (VN-Index) Research results show that in the long term exchange rate, foreign direct investment and gross domestic have a negative impact on stock price indexes; With inflation, money supply and total trading volume have a positive impact on most stock price indexes in the long term.‖ ―At present, there are many articles and researches about the impact of LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com macroeconomic factors on the stock market However, in each time and different conditions, the impact factors and the level of impact on the stock market will not be the same Especially in the current condition of Vietnam stock market with many companies was listed on stock market, the difference may be very large.‖ ―In order to achieve this goal, the next chapter will present the theoretical basis of the research problem After that, the research method and model test results Finally, comment on research results and conclusions.‖ Key words: Gross Domestic Product, Foreign Direct Investment, Exchange Rate CHAPTER 1: LITERATURE REVIEW ―In Vietnam, the change of macroeconomic policies often happens suddenly, thus affecting the psychology of investors, the stock market and the general activities of the economy Therefore, analyzing the impact of macroeconomic factors on the economy in general and the stock market in particular is a necessary and useful thing When identifying macroeconomic factors affecting the stock market, it will contribute to solutions to overcome when there are negative impacts of macroeconomic factors on the stock market as well as help develop appropriate stock market with the economic situation.‖ ―At present, there are many articles and researches about the impact of macroeconomic factors on the stock market However, in each time and different conditions, the impact factors and the level of impact on the stock market will not be the same Especially in the current condition of Vietnam stock market with the introduction of many new indexes in HOSE - Index such as VN30, VNMidcap, VN100, VNSmallcap, VNAllshare, the difference may be very large.‖ ―To achieve this goal, the next section will present the theoretical basis of the research problem After that, the research method and model test results Finally, comment on research results and conclusions.‖ LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ―Moreover, there are many reasons that affect Vietnam stock market and some the most well-known factors are GDP, CPI, FDI, Gold, and FDI… From those, I found there are three important factors that have a strong influence on Vietnam's stock market that are Exchange rate, Inflation, Money Supply, GDP and FDI.‖ 1.1 Definitions 1.1.1 Vietnam Stock Market ―The stock market refers to the collection of markets and exchanges where regular activities of buying, selling, and issuance of shares of publicly-held companies take place Such financial activities are conducted through institutionalized formal exchanges marketplaces which operate under a defined set of regulations There can be multiple stock trading venues in a country or a region which allow transactions in stocks and other forms of securities (Investopia, 2019)‖ 1.1.2 Inflation ―Inflation is a quantitative measure of the rate at which the average price level of a basket of selected goods and services in an economy increases over a period of time It is the constant rise in the general level of prices where a unit of currency buys less than it did in prior periods Often expressed as a percentage, inflation indicates a decrease in the purchasing power of a nation’s currency (Investopia, 2019)‖ 1.1.3 Money supply ―The money supply is the entire stock of currency and other liquid instruments circulating in a country's economy as of a particular time The money supply can include cash, coins, and balances held in checking and savings accounts, and other near money substitutes Economists analyze the money supply as a key variable to understanding the macroeconomy and guiding macroeconomic policy (Investopia, 2019)‖ 1.1.4 FDI LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ―Foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets, including establishing ownership or controlling interest in a foreign company Foreign direct investments are distinguished from portfolio investments in which an investor merely purchases equities of foreign-based companies (Investopia, 2019)‖ 1.1.5 Exchange rate ―An exchange rate is the value of one nation's currency versus the currency of another nation or economic zone For example, how many U.S dollars does it take to buy one euro? As of February 23, 2019, the exchange rate is 1.13, meaning it takes $1.13 to buy €1 (Investopia, 2019)‖ 1.1.6 GDP ―Gross Domestic Product (GDP) is a broad measurement of a nation’s overall economic activity GDP is the monetary value of all the finished goods and services produced within a country's borders in a specific time period.‖ ―GDP includes all private and public consumption, government outlays, investments, additions to private inventories, paid-in construction costs and the foreign balance of trade (exports are added, imports are subtracted) It may be contrasted with Gross National Product (GNP), which measures the overall production of an economy's citizens, including those living abroad, while domestic production by foreigners is excluded Though GDP is usually calculated on an annual basis, it can be calculated on a quarterly basis as well (in the United States, for example, the government releases an annualized GDP estimate for each quarter and also for an entire year) (Investopia, 2019)‖ 1.2 Impact of different factors on performance of stock market LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 1.2.1 Inflation ―The relationship between stock market performance and inflation is imperative for investors because stocks are expected to provide protection from the effects of inflation (Mbulawa, 2015) However, A number of researches conducted to examine the effect of inflation on stock returns in both developed and developing economies around the world have provide mixed findings on the connection between inflation and stock market returns For instance, Fama and Schwert (1977) found a negative relationship between the performance of the stock market and inflation Some significant studies from Pearce and Roley (1985) and Hardouvelis (1988) showed no significant correlation between the stock returns and inflation and this proves that there is need for further exploration into the topic To seek clarity on the relationship between inflation and stock price movements, further research must be done to investigate the behavior of the two variables This study intends to address the question: what is the effect of inflation on stock market returns in the VSM? There are a wide range of researches showed that how inflation affects on stock market For example, in 1977, Fama and Schwert found a relationship between inflation and the stock market The author used expected inflation and expected inflation to consider the impact of inflation on the stock price index and the results show that there is a negative impact of inflation on stock prices Mohammed Omran and John Pointon (2001) also found negative impacts of inflation on the Egyptian stock market in the short and long term In 2011, Adel Al Sharkas and Marwan Alzoybi conducted research on the subject of ―Stock prices and inflation; Experimental evidence in countries such as Jordan, Saudi Arabia, Kuwait, Morocco‖ With the VAR model, the author supported the hypothesis of the long-term impact of inflation and stock prices Mahedi (2013) based on market efficiency inflation influences stock indices, where; when the inflation rate is higher than expected, which is economically bad news, implies meaningful impact of stock returns.‖ LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ―A study by Alimi (2014) also examined the long run and short run relationships between inflation and the financial sector development in Nigeria over the period between 1970 and 2012 The findings of the study found that that inflation presented deleterious effects on financial development over the study period Taofik and Omosola (2013) explored the relationships and dynamic interactions between stock returns and inflation in Nigeria and revealed the existence of a long run relationship between stock returns and inflation Ahmad and Naseem (2011) examined the impact of high inflation on stock market returns in Pakistan using monthly data of inflation and stock returns and found that there is negative and significant impact of inflation on stock returns Krylova & Vahamaa (2004) examined the impact of inflation and economic growth expectations and perceived stock market uncertainty and established that stock and bond prices move in the same direction during periods of high inflation expectations, while epochs of negative stock-bond return correlation seem to coincide with the lowest levels of inflation expectations In their study, Kullapornand Lalita (2010) also investigated the relationship between inflation and stock prices in Thailand andalso explored the impact of specific events and revealed that that movement of stock prices is irrelevant to inflation Kaul (1987) explains that the relationship between inflation and stock returns varies over the time in a systematic way He determines that this relationship is caused by money demand and supply factors Pérez de Gracia and Cuñado (1999) analyze the relationship between inflation and common stock returns during the 1941-1999 in Spain, corroborating the existence of Granger causality relationship between inflation and stock returns and, therefore, they disagree with Geske, Roll, and Fama: this relationship cannot be spurious Other alternative explanation is the theoretical ―Rational Expectations Equilibrium Model‖ of assets prices of Veronesi (1999) He concludes that stock prices overreact to bad news when the state of the economy is good and underreact to good news when the state of the economy is bad It occurs because when the announcements go against the market tendency, the investor’s uncertainty increases and, therefore, the volatility of the market also increase.‖ LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ―On the other hand, a recent paper of Li et al (2010) suggests that the relationship between inflation and stock returns varies depending on the economy goes through high or low inflation periods Estep and Hanson (1980) propose that this relationship could be neutral because the companies can transfer the increases of inflation to the prices of their products This theory is known as ―Flow – Through‖ hypothesis (Jareño, 2005, and Jareño and Navarro, 2010) They conclude that the companies with a higher flow – through ability are less affected by changes in inflation rate Therefore, the negative effect of a rise in inflation on a firm is inversely related with its flow – through ability Díaz and Jareño (2009 and 2013) deal to explain the impact of inflation news on stock prices taking into account, on one hand, the Veronesi’s hypothesis and, on the other hand, the Estep and Hanson’s ―flow – through hypothesis‖ Firstly, they analyze the short run response of each sector of Spanish economy to unanticipated component of inflation announcements, and secondly, they study the potential explanatory factors of each response They observe different reactions to unexpected inflation depending on the direction of the news and the state of the economy They obtain evidence that the positive surprises (―bad news‖) affect in more sectors than the negative surprises (―good news‖) and, moreover, the reaction of investors is stronger when the news are bad than when the news are good (as suggested by Veronesi) Some authors such as Oxman (2012) suggest that the relationship between inflation rate and stock returns depends on the measure of inflation it has utilized He concludes that all measures of inflation are positively and significantly related with risk premium but not with excess returns.‖ In conclusion, most research found that inflation have a negative impact on stock market The unexpected rise of inflation is generally considered the most painful, as it takes companies several quarters to be able to pass along higher input costs to consumers Likewise, consumers feel the unexpected price when goods and services cost more Therefore, consumers tend to invest less on stock market LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 1.2.2 Money supply ―National stock markets, belonging to and being the basis of the global capital market, affect the global market on one hand, but on the other hand they are themselves under the influence of the global market Some authors (Bilson, Brailsford, Hooper, 2000) note that national (risk) factors affect the performance of the stock market more than global factors (supranational) The basic instrument for investigating the factors affecting stock markets is the fundamental analysis which can be performed on three basic levels: global, sector-specific and corporate Factors affecting the price behaviour not only of shares but also other securities and instruments can be further divided into macroeconomic and microeconomic (e.g psychological effects) As King (1966) notes, stock markets are influenced by macroeconomic factors by an average of 50% A similar view is shared by Musílek (1997) who, unlike King, stays on the general level and claims that if an investor wants to be successful, he must focus mostly on price-shaping macroeconomic factors In regard of that the spot price of stock present future income, which are discounted, Flannery, Protopapadakis (2002), mean that macroeconomic variables are the most important indicators, which influence the stock returns, because right this factors has an impact on future company´s cash flow and influence the high of discount rate.‖ ―The first study in modern history, which focus on effect of macroeconomic variables on stock prices can we post e.g Nelson (1976), Jaffe a Mandelker (1977) or Fama, Schwert (1977) The impact of national macro-economic factors on the performance of national stock market in the modern period was addressed by authors such as Bilson, Brailsford and Hooper (2000), who maintain that these factors determine the stock prices more than the global macroeconomic factors According to Veselá (2010) the macroeconomic factors that influence the development of stock prices, include interest rate, inflation, GDP, money supply, the movement of international capital changes in exchange rates, political and economic shocks According to Kohout (2010), the most important factor influencing the development of stock prices in the LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com long term is the amount of money in the economy (i.e money supply) Also Flannery, Protopapadakis (2002) include among the major macroeconomic factors the money supply as well as unemployment, trade balance, the number of new residential buildings and the Producer Price Index.‖ ―According to Maskay (2007) or Chromec (2006), the monetary policy or change in money supply, is one of the most effective tools available to the national central banks of individual countries in association with influencing the actual economic activity Many authors, such as Keran (1971), Gupta (1974), Musílek (1997), Poiré (2000) or Shostack (2003) consider the money supply as the instrument of the monetary policy, to be the most important macroeconomic factor that influences the behavior and development of stock prices Maskay (2007) and Ioannidis, Kontonikas (2006) consider the stock market to be the basic indicator of the condition and development of the economy strongly influencing and preceding it Also these authors consider the money supply to be a strong determinant of the stock market, i.e of the entire economy Money supply can affect stock prices directly, when there is more money in the economy than can be utilized so they are allocated to investments But as already mentioned, for example, by using quantitative release results indirectly in the reduction of the interest rates rendering the external financing cheaper, leading to increasing investments (growth in the demand for shares) and consumption (better economic results of companies).‖ ―By examining global factors certain associations were discovered between variables (in this case the money supply) and the development of stock prices, using which we can predict the future development and that represent an important guide for the investor Most authors listing macroeconomic factors that influence the development of stock prices consider the monetary policy, or change of the money supply in the economy to be the most important factor A statement by Gupta (1974) serves as example, when he says that the money supply can be utilised for predicting the development of stock markets His investigation confirmed that 59% of the value of LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com stock indices can be predicted based on the money supply This statement is supported by Rapach, Wohar and Rangvid (2005) who, in their analysis focused on the prediction of stock market development by using macroeconomic factors in 12 countries, concluded that the most trustworthy macroeconomic indicator for stock market predictions is the interest rate Pearce, Roley (1985) in their research dealt with the issues of anticipative money supply and concluded that there is a reciprocal relation between the nonanticipative money supply and the development of the stock prices As stated by these authors, the central bank will quickly respond to this growth by raising the interest rates, resulting in the reduction of stock prices, because investors will seek less risky substitutes for their investment On the contrary, according to Bernanke (2003) the anticipative change in the money supply will have no effect on the development of prices of financial assets (i.e also including equity securities - shares) because the investors included it in their decisions (the asset prices were discounted) Only non-anticipative change in the money supply may influence the prices of securities Varying effects of anticipative and non-anticipative money supply on the development of stock prices are confirmed by the Maskay (2007).‖ ―There were many studies published which dealt with the analysis of the influence of the money on the stock markets, albeit with differing results As stated by Habibullah, Baharumshah (1996), the first author to empirically deal with the relationship between the money supply and stock rates was Sprinkel (1964), who found a strong relationship between the change in the U.S money supply and stock prices in the observed period of 1918-1960 This study became the basis for the work of Mookerje (1987), Jeng, at al (1990), and Malliaris, Urrutia (1991) In this respect, a question arises whether this relationship holds even today, that is approximately 50 years after publication of this ―pioneering study‖, or how massive change of the money supply (e.g the consequences of quantitative release) during the recent financial crisis influenced the development of stock prices and how the change in the money supply affects the development of the stock price bubbles LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com (Source: https://www.schroders.com/en/insights/economics/how-currencies-movestockmarkets/?fbclid=IwAR2OydPMKmui5sqm9om7kHVOSrAUqXgUD7euyNMherlAinwf95q5JXfwxk) In the case of Vietnamese stock market, most companies listed in the VN INDEX operate on a national scale mainly, thereby have their revenues in Vietnam Dong (VinGroup, Vinamilk, VinaCafe, Petrolimex etc)., the Vietnamese Stock market shares similar trend as the US’ - a currency appreciation improves the VNINDEX However, this weak positive correlation suggests that the positiveness might be offset by a negative correlation Can the exchange rate has a negative correlation to the Vietnamese stock factor? The Vietnamese government has attempted to devalue the Vietnam Dong to make its exports more attractive globally, which will benefit companies whose exports are export based If many companies in the VNINDEX depend heavily on exports, a currency depreciation improves the VNINDEX as a whole When we take into account both rationales, we see that the increase in exchange rate can have a positive or negative relationship with the stock market In the case of the LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Vietnamese stock market, it might be influenced by both, leading to the result of a weak positive correlation (because part of the positive relationship is offset by the negative relationship) I believe that the close-to-0 beta is the result of the positive and negative result cancelling out each other, not because of exchange rate having no impact on the stock market at all - FDI: With a beta of 0.77, the model showed that it has a positive impact on stock market and it confirmed my expectation in hypothesis This result same as the research on FDI which has a positive effect in only developing countries (Johnson, 2005), (Adam and Anokye et al, 2008) Foreign direct investment has become a cornerstone for both governments and corporations By acquiring a controlling interest in foreign assets, corporations can quickly acquire new products and technologies, as well as sell their existing products to new markets And by encouraging foreign direct investment, governments can create jobs and improve economic growth For investors, foreign direct investment plays an extremely important role The growth of markets has been due in large part to incoming foreign direct investment At the same time, companies investing abroad can realize higher growth rates and diversify their income, which creates opportunities for investors - GDP: With a beta of 0.071, we see that GDP has a positive relationship with the stock market This confirms my hypothesis earlier as I predicted that a high GDP growth will encourage investors to invest in the stock market as they have more confidence in the growth and profitability of that country’s companies Theoretically, in a closed economy, GDP growth must have a positive impact on the stock market performance This is because the progress of a country’s economy will translate into its companies’ profits, in turn will increase their ―Earnings per Share‖, and ultimately their stock price If many companies’ stock prices increase, the VN-INDEX will increase However, the financial market is not a closed market, and the Vietnamese economy is no longer a closed economy The effect of GDP on stock market in Vietnam is not a LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 1-1 relationship In fact, A beta of 0.088 suggests that GDP has a relatively low correlation with the stock market There are many other factors that will affect the stock market index and not just GDP alone For example, the index might be influenced by the movement of the global financial conditions rather than the domestic economic performance The disconnectedness between GDP and stock market index can be illustrated by Japan - where the GDP and stock market move in two directions but the Japanese stock market moves in concordance with the global stock market (Source: https://www.schwab.com/resource-center/insights/content/what-does-gdp-meanstock-market?fbclid=IwAR0YRcdMdxu_j49nvyFBnh0jwzhrPvnu0AAFzmykdfjKxUPwnOBRS81jtc) In my hypothesis, I expected GDP to play an important role in dictating the stock market performance But after constructing the model and further research, I realized that I need to factor in a global economy and financial markets too, not just the local LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com economy on its own GDP has a positive correlation with the stock market but it’s not a very influential factor to the model due to the increasingly integrated financial market.‖ LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CHAPTER 3: CONCLUSIONS AND POLICY SUGGESTIONS ―The research results show that stock price indexes are affected by macroeconomic factors such as inflation, money supply, exchange rate, GDP, FDI and total trading volume However, this impact is different for each factor On this basis, the study suggests a number of policies to increase the positive impact and limit the negative impact of macroeconomic factors on stock price indexes on HOSE 3.1 Conclusion ―Consider that if our rate of inflation were high enough, used cars would rise in price just like new cars, only at a slower rate.‖ The same concept would apply to the stock market: if there were a constant amount of money in the economy, the sum total of all shares of all stocks taken together (or a stock index) could not increase Plus, if company profits, in the aggregate, were not increasing, there would be no aggregate increase in earnings per share to be imputed into stock prices In an economy where the quantity of money was static, the levels of stock indexes, year by year, would stay approximately even, or drift slightly lower — depending on the rate of increase in the number of new shares issued And, overall, businesses (in the aggregate) would be selling a greater volume of goods at lower prices, and total revenues would remain the same In the same way, businesses, overall, would purchase more goods at lower prices each year, keeping the spread between costs and revenues about the same, which would keep aggregate profits about the same Under these circumstances, capital gains (the profiting from the buying low and selling high of assets) could be made only by stock picking — by investing in companies that are expanding market share, bringing to market new products, etc., thus truly gaining proportionately more revenues and profits at the expense of those companies that are less innovative and efficient LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com The stock prices of the gaining companies would rise while others fell Since the average stock would not actually increase in value, most of the gains made by investors from stocks would be in the form of dividend payments By contrast, in our world today, most stocks — good and bad ones — rise during inflationary bull markets and decline during bear markets The good companies simply rise faster than the bad Since we have seen that neither the stock market nor GDP can rise on a sustained basis without more money pushing them higher, we can now clearly understand that an improving economy neither consists of an increasing GDP nor does it cause the overall stock market to rise This is not to say that a link does not exist between the money that companies earn and their value on the stock exchange in our inflationary world today, but that the parameters of that link — valuation relationships such as earnings ratios and stock-market capitalization as a percent of GDP — are rather flexible, and as we will see below, change over time Money sometimes flows more into stocks and at other times more into the underlying companies, changing the balance of the valuation relationships 3.2 Policy Suggestion In 2008, Vietnam's stock market continuously changed complicatedly, although the Ministry of Finance has implemented many positive solutions The VN-Index in November fell by 70% compared to the end of 2007 According to the Ministry of Finance, the impact of domestic macroeconomic factors and the current global financial crisis, The recovery of the market is still difficult Up to now, there have been nearly 330 listed shares and fund certificates on the stock market with a total market capitalization of about 19% of GDP Facing the difficulties and challenges of the current stock market, the report of the State Securities Commission at the 2008 Economic Forum took place on October 2, 2008 in Hanoi, showing objective factors and Subjective influence on the market The State Securities Commission said in the immediate future, it would propose to the Government LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com to adopt the project ―Sustainable development, preventing crisis in the stock market‖ in order to proactively deal with possible complicated happenings In 2009, the US and world economies are forecast to continue to deteriorate if government measures not achieve good results That will also affect the development of the stock market in many countries, including Vietnam But the strongest impact is our internal factors In our opinion, when the world market is unstable, Vietnam is the place where better investment conditions will attract more So if there are correct policies, the market will grow reasonably It also depends on the policies of nurturing and encouraging the State Currently, Vietnam stock market is still not as big and strong as we have evaluated it The number of securities accounts is just over 300,000 but actually transactions are only about 1/2 It is a very small number compared to Vietnam's population In my opinion, at least 2% of the population must participate in this market to download all the market capacity Besides, the average daily transaction volume is only about VND 1,000 billion compared to the total market capitalization of VND 500,000 billion which is too small Regardless of any capital transfer, the market will be in a slump Therefore, the policies of the State management agency must follow the direction to encourage investors to participate rather than consider tightening and harvesting from it If possible, loosen the policy on capital and stock income tax In terms of specialized management, it is necessary to create professionalism, standards and order so that investors will not be damaged in their investment process, especially not to harm the interests of individual investors Specifically, information disclosure requirements of listed companies must be built according to clear criteria and regular inspection Besides, companies when issuing shares must perform more professionally Do not self-depreciate stocks in the same way as before and make investors suffer and affect the quality of the market 3.2.1 Control inflation LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Coordinate synchronously and flexibly between monetary policy and fiscal policy to avoid adverse impacts affecting the performance of each policy Inflation is influenced by many reasons such as economic structure, import and export situation, credit policies of banks or fiscal policies However, inflation is expressed mainly through money supply For the economy, in order to control inflation, there should be solutions to influence the money supply such as applying monetary tightening policy, controlling interest rates to suit different market situations school, focus credit policy on key economic activities The application of these solutions requires coordination of the State Bank and credit institutions to ensure the stable operation of the bank and achieve the set target of controlling inflation Strengthening the information collection, processing data quickly and accurately on inflation to provide sufficient information for assessing the status of the economy as well as production and business activities, promptly time to offer solutions when bad happenings happen; minimizing risks of losses 3.2.2 Exchange rate stability The exchange rate plays an important role in the activities of the economy Especially in the current period, Vietnam has policies to attract investment capital from abroad; especially for capital indirectly through the drafting of contents such as foreign investors may purchase shares or contributed capital to own 51% of the charter capital of an active securities business organization; may establish 100% foreign-owned securities trading organizations or purchase 100% foreign-owned securities business organizations operating in Vietnam With the policies to attract capital, the exchange rate stability will contribute to the policies to attract capital from foreign countries to achieve higher efficiency; help build trust for investors about a stable business environment with many preferential policies; creating steps in the future in attracting more foreign capital to invest and develop the stock market in the future LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com In order to achieve the goal of stabilizing the exchange rate, it is necessary to carry out economic activities to create a lot of foreign currency revenues such as: improving the international payment balance, increasing foreign currency reserves, when needed It is necessary for the SBV to use to regulate and maintain a stable exchange rate In addition, it is necessary to well implement the macro management role of relevant departments to provide timely and appropriate regulatory policies when there are fluctuations in the economy affecting exchange rates When implementing the above solutions, it will help boost the economic potential and sufficient tools to maintain the stability of the foreign exchange market, against external shocks to help stabilize the macro economy and limit unusual impact of macroeconomic factors on stock price indexes 3.2.3 Flexible management of monetary policy The administration of monetary policy plays an important role in the economy, helping the economy achieve macroeconomic goals such as curbing inflation, stabilizing exchange rates and further economic growth Monetary policy through the change in money supply will affect the objects in the economy, with the stock market, the monetary policy will affect the money supply and affect the investors' investment decisions When implementing the expansionary monetary policy, the money supply will reduce the overall interest rate When low interest rates will discourage deposit into banks and investors can borrow more capital at a lower cost than before, which makes investors look for a more attractive investment channel, one of the channels That is the stock market As a result, the demand for securities has increased, leading to a rise in stock prices 3.2.4 Some other suggestions Vietnam stock market is still new and small, so the role of the State is very important in supporting, controlling, and orienting the market to develop healthy and sustainable To support the recovery of the stock market development in the immediate future, we need to have the following measures: LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com - The Government may consider delaying the application of personal income tax on profits from securities investment and tax roadmap For investors, tax incentives will encourage them to invest in the capital market For businesses, tax incentives indirectly reduce capital costs, increase efficiency, increase the competitiveness of businesses, and stimulate economic growth in the home country Economic growth, the income from corporate income tax and other taxes will thus offset, even greater than the temporary loss of income from tax income incentives From January 1, 2009, personal income tax in securities business began to be implemented The community of investors still believed that, in the current period, delaying this tax is a good thing to do, such as a good support for the market, especially psychologically However, regarding this issue, the agency in charge of collection is the General Department of Taxation, which has sent a document to the Ministry of Finance, which does not support the policy of extending the collection of securities tax Regarding tax issues on securities business activities, from the experience of stock markets in many countries such as Australia, England, and the United States, showing that business has to pay taxes is a normal problem In many countries, securities trading is even subject to many taxes But for our country, the basic problem is how much to tax and how to tax appropriately Currently, most investors staying with the market up to this point are suffering losses If you have to pay more taxes, of course, more and more people are discouraged because they feel they are being treated ―not well‖, because in the difficult time no one will share, it will make investors no longer interested in the market Liquidity of the market is low, domestic and foreign investors are not interested in investing So the absent floor, the market is less liquidity, it is difficult to add goods to the market due to slow equitization, big enterprises are afraid to go to the floor because they are afraid that stock prices will not be as expected It is a vicious circle LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Therefore, to keep the policy consistency and support the market, we can still find a neutral solution We still apply taxation in securities trading activities, but we can apply the 0% tax rate for a while, as some countries apply temporary tax exemption solutions Thus, the stock tax is still done on the right road, but the temporary tax solution to support the market is still implemented, every investor understands that he has to pay securities On the other hand, with management agencies, tax laws were also implemented, just adjusting the tax rate accordingly, also a way of regulating the market, a temporary support solution for investors For example, China in the period of 2006 - 2007 when the market got hot, the Government of this country increased tax, recently when the market dropped sharply, they were exempted If the personal income tax only protects the viewpoint of income regulation and forgets the role of economic leverage, then the role of tax is not fully understood Therefore, it is necessary to distinguish the different importance between the stock market (which is a capital market that is needed for a hot economy) and the real estate market (which is a lucrative investment market) If only standing on a regulatory standpoint, this will worsen those who want to join the stock market The downward market also has its positive side It is a clear response to a capital market in market mechanisms and integration, but requires appropriate policies and management mechanisms If it only seeks to exploit for many purposes, it will be difficult to develop conditions Vietnam's stock market has experienced a boom in 2007, but compared to the size and task of developing the capital market until 2010 2020 of the Government, the stock market needs special mechanisms and strong enough to achieve get this goal Through observing policies and administration over the years, I have found many inconsistencies and inconsistencies - The issue of equitization of state-owned enterprises For non-state enterprises, the timing and determination of the public offering price is usually calculated as the most beneficial for the current business or shareholder However, for state-owned LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com enterprises, the interests of enterprises and the overall economic development goals should be balanced To achieve that, the Government needs to make a determination to implement the equitization roadmap outlined The offering price of shares to the public needs to be more reasonably calculated, based on the true profitability of the business, to encourage people to participate The idle capital in the population will therefore be mobilized to the utmost in economic development instead of flowing into other ineffective channels which are not conducive to economic and social development The equitization of state-owned enterprises has an important task of converting ownership and management mechanisms into joint-stock companies while selling to collect capital for the budget does not necessarily require immediate collection of a large amount Therefore, if the IPO only sells a small part (less than 10%) and the selling route can last many times in 3-5 years, the supply will not increase sharply but the task of business transformation is also completed The size of Vietnam stock market is still small, the equitization of large enterprises, bringing these companies to the floor will create a bigger market When the stock market is big enough and has enough liquidity, foreign investment funds will put into their investment portfolios according to the principle of risk division according to geography, industry Of course, when selling shares must be reasonably calculated, rather than bringing the price up too high to be ―inadequate profit‖ The roadmap for implementation must also be considered more carefully so that the market does not react negatively to that In my opinion, in the second quarter of this year, the stock market will start to grow better However, this year's growth also depends heavily on the new policies of the State and the inflation rate standing at what level - The State Bank needs to have a good forecast of foreign currency inflows into the stock market and properly deal with the relationship with inflation If there is a correct prediction, the SBV can issue VND bonds to buy USD of foreign investors, LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com which helps investors have money to buy stocks without increasing the money supply causing inflation From there It can be said that how the stock market develops depends on the policy making agencies - The regulator is the market coordinator, keeping the pace for the development market so the policies must have stability Must solve the current problems to build trust of domestic and foreign investors Psychology of investors is extremely low, so they have to ―inject‖ into a ―revival medicine‖ The important issue is to open up the money to invest in the stock market The stock market grows strongly, the capital from other places such as real estate, gold will automatically flow back At that time, the real estate market will also calm itself without the State having to restrain policies The markets are similar, so the regulation will be more natural without the need for state authorities to intervene too deeply - Implementing more proactive and flexible monetary policy in order to match the actual situation to help control inflation, stabilize the macro economy and support economic growth In addition, it helps limit negative impacts on stock price indexes when there are impacts from the economy and builds confidence for investors when participating in the market - Flexibly regulate the circulation of cash to meet the needs of the economy when necessary as well as support the implementation of the SBV's regulatory policies on the face value of money; value, ensure a good amount of cash reserves will be issued; strengthen information, propaganda and coordination of relevant agencies to improve measures to prevent counterfeit money, money laundering and currency protection in Vietnam - Although the SBV's activities greatly affect the safety of the banking system, the money supply in the market However, the State Bank of Vietnam is only regarded as a state administrative agency like other ministries, not a special agency independent of the Government Therefore, in order to bring about the effectiveness of the SBV as well as the management of policies to achieve the expected results, it is necessary to LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com enhance the independence of the SBV compared to other authorities like the Government Independence can be expressed through independence in policy making and being proactive in using regulatory monetary policy enforcement tools on the market With this relative independence will help the decisions of the State Bank will quickly achieve efficiency in the market, timely mitigate negative impacts on the economy - Strengthen the inspection and supervision of monetary market, control the quality of operations and handle bad debts of credit institutions in order to detect and handle errors promptly to ensure the safety of operations credit institutions; help limit negative impacts on stock price index and stock market in general‖ LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ... Díaz and Jaro (2009 and 2013) deal to explain the impact of inflation news on stock prices taking into account, on one hand, the Veronesi’s hypothesis and, on the other hand, the Estep and Hanson’s... their study, Kullapornand Lalita (2010) also investigated the relationship between inflation and stock prices in Thailand andalso explored the impact of specific events and revealed that that... stock market and inflation Some significant studies from Pearce and Roley (1985) and Hardouvelis (1988) showed no significant correlation between the stock returns and inflation and this proves