Introduction
Vietnam's equity market has benefited from the country's high economic growth of around 7% of gross domestic product (GDP) per year over the past decade, especially in 2007 at 8.5% as well as rapid equitization of state-owned enterprises (SOEs)
Passing more than 1 0 years of dev~lopment, Vietnamese stock market has developed quickly and attracted more and more foreign capital, adding a large capital source for listed companies to produce and helping the stock market to develop strongly
Before 2005, the role of foreign investors in the Vietnamese stock market was very blurred This can be explained by new establishment, not yet strong growth of the market to attract both domestic and foreign investors However, 2006 is an important transitional year of foreign investors to the stock market Foreign ownership in 2006 increased three-fold, from 6% to 17%, and up to end of 2007 this number is 30% And from 2007, the foreign ownership is always at high level
The Vietnamese stock market is an emerging market that attracts more and more foreign investors who play a very important role in development of the market as well as the economy
Over the past 1 0 years of working of Vietnamese stock market, foreign investors play an important role not only in Vietnamese capital markets but also Vietnamese economic growth In fact, foreign investors help listed companies gain more capital to produce as well as to innovate their technologies Foreign investors also help listed companies to enhance their reliability Moreover, foreign investors bring experiences in management and investment even corporate governance into Vietnam Douma,
Pallathiatta and Kabir (2006) investigated the impact of foreign institutional investment on the performance of emerging market firms and found that there is positive effect of foreign ownership on firm performance So, finding indicators affecting foreign investors' holding decisions is important to attracting even greater 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
The first is a diversification strategy or to spread investment risk among foreign companies and markets that are different from the United States economy; and second is growth strategy, exploiting the potential for growth in some foreign economies, particularly in emerging markets
Obviously, foreign investors invest into another country in order to diversify their investment portfolios Moreover they pay more attention to emerging markets which usually have faster and higher growth However they first consider whether Government's monetary policies affecting interest rate, exchange rate, inflation rate and the political environment are stable or not to ensure that they will not meet potential risks when withdrawing their profits Foreign investors also consider characteristics of listed companies will help them to choose which kinds of stocks or which kinds of portfolios to invest in These characteristics include ownership structure, financial structure, stock structure, and stock performance Investors do indeed hold fewer shares in firms with ownership structures that are more conducive to expropriation by controlling insiders Finally, some foreign investors have ethical, moral, strategic, national, or cultural criteria that lead them to invest in certain countries and companies, and to avoid others Determining which of these criteria are the most significant for listed firms at Hochiminh stock exchange will provide valuable information aiming at attracting more capital for the Vietnamese equity.
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;
- Examine the pattern growth between VN Index and some indices such as ShangHai Index and Dow Jones Index to understand why foreign investors invest into Vietnam stock market if there is correlation
- 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
The paper is organized as follows Chapter 2 presents an overview of development of the Vietnam stock market, Hochiminh stock exchange and foreign investors in the market A brief literature review is provided in Chapter 3 Chapter 4 describes the panel data model used to estimate the hypothesis, the research methodologies and a description of the data set Research results are given in Chapter 5 Conclusions and policy implications complete the thesis.
Background
The establishment of the Vietnam Securities Market is marked by official operation of Hochiminh City Securities Trading Center (HoSTC) on July 20th, 2000 and its first trading session on July 28th, 2000
In 2007, HoSTC was transferred into Hochiminh Stock Exchange (HOSE) HOSE is regulated by Securities Law, Business Law, the Charter of HOSE and other relevant regulations The event was a milestone in HOSE development and helped it to have an appropriate position in the regional and international Stock Exchanges
Development of HOSE is accompanied by the ups and downs of the economy; its quick development has benefited from high growth rate of GDP of around 7% per year
Moreover, there are many specific events that made the stock market develop quickly including joining the World Trade Organization (WTO) and the official visit to Vietnam of the American President George W Bush in late 2006 In 2007 we saw a sharp increase in the number of listed companies and blooming of the market, and the Securities Law is issued and came into effect the same year However, being affected by global financial crisis from 2008 until now, the stock market faces many difficulties with the sharp fall in prices of many stocks The macro economy is faced with a tight budget, trade deficits, and high inflation 2008 was the year with the highest inflation in the last 20 years and up to 23%, decreasing economy growth All of these factors created strong impacts to the Vietnam 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)
Although it is young, with the role of "thermometer" of the economy, the Vietnam Securities Market, expressed by VN Index has gained significant development
However it also shows strong fluctuations From 307.5 in late 2005, VN Index increased to 809.86 in the sessions on Dec 20th, 2006 The closing of2006 was 753.81, up by 446.31 equivalents to 145.14% of increase compared to the end of 2005 In the first few months of 2007, VN Index rapidly increased and reached 1170.67 records in sessions on Mar 12th, 2007 The Vietnam Index then fluctuated and got under 250 in the first sessions of Mar, 2009 and presently stays around over 500 This is also a specific feature of emerging markets, including Vietnam market It's very volatile
(Source: Summarize from Hochiminh Stock Exchange)
10 years of establishment and growth of HOSE means the first steps of successful establishment of the Vietnam Stock Market, indispensable financial institution meeting demands for its development and integration into international economies
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 securities market, through HOSE, has become an important capital raiser for the economy From the first two stocks of Refrigeration Electrical Engineering Corporation (REB) and Sacom Development and Investment Corporation (SAM), until Mar 30th, 2009, there were 177 stocks, 4 fund certificates and 83 bonds listed on HOSE The total amount of issued securities up to Mar 30th, 2009 was 6,306.56 million (in which there were 5,904.96 million stocks, 252.05 million fund certificates and 149.54 million bonds) with the total listing value of76,640 billion VND
Up to now, Hochiminh stock exchange successfully held more than 200 auctions, raised over 50,000 billion VND, in which there were initial public offerings of lots of groups, corporations, and enterprises in many important fields of the economy such as Bao Viet Holdings, Petro Vietnam Finance Joint Stock Corporation (PVFC), Petro Vietnam Fertilizer and Chemicals Corporation, Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), Vietnam Joint Stock Commercial Bank for
Industry and Trade (Vietinbank), so on, marking the process of privatization with big materialistic changes
(Source: Summarize from Hochiminh Stock Exchange)
A number of listed companies on HOSE drew attention from international investors, have been planning to raise capital and were listed on foreign stock exchanges
Vietnam Dairy Products Joint Stock Company (VNM) was the first Vietnamese enterprise to hold share auctions and to be listed on a foreign stock exchange
In 2001, registered accounts in member firms were 8,774, and then to the end of 2008 the number increased to 510,000, with average annual growth of 110%, in which, domestic investors accounted for 97% Foreign investors were only 3% of accounts but 14% of total trading volume (Source: Summarize from 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 as well- especially in 2008, are the good experiences for companies to evaluate their potentials, reform their activities and improve their productivities Besides investors both foreign and local will have lessons for investment.
Foreign investors in the Vietnamese stock market
Foreign investors play a more and more important role for Vietnam's stock market, including both institutional and individual foreign investors At the end of 2010, there are more than 13,000 accounts of individual foreign investors and about 800 accounts of organizations opened at securities firms which are members of HOSE Whereas, that number at domestic investors are more than 1 million accounts for individual investors and 3,500 accounts for organizations However, foreign investors account for about 10 percent of trading value of the whole market Sometimes, foreign investors' buying pushes the market up Foreign investors mainly come from Japan, Thailand, Taiwan, Korea, China and others from the United States
Besides, foreign investors' trading becomes larger both in volume 'and value
According to the figure below, foreign investors are net buyers in all years 2007 was a boom year for the Vietnamese stock market with net buying of nearly 170 million shares and 23 billion dong Being affected by global financial crisis of 2008, 2009 and even 2010, the stock market meets lots of difficulties with a decrease in trading of foreign investors Although the number of traded shares still increase but the trading value of foreign investors has decreased due to a sharp decrease in prices of many stocks
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
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