Liquidity of the corporate bond market in Vietnam Abstract The paper has proposed three criteria to measure the liquidity of the bond market At the same time, the study also collects data and compares.Liquidity of the corporate bond market in VietnamAbstract: The paper has proposed three criteria to measure the liquidity of the bond market. At the same time, the study also collects data and compares it with many countries around the world. After analyzing and evaluating, the research has pointed out some key points that cause problems related to liquidity. Finally, the paper proposed a group of solutions, which emphasized the importance of enhancing information transparency in the market and the appearance of reputable rating agencies.Keywords: Vietnam corporate bond market, corporate bond, liquidity1. Problem statementVietnam strives to bring the outstanding debt in the bond market to about 45% of GDP by 2020 and about 65% of GDP by 2030, of which the outstanding debt of the corporate bond market will reach about 7 % of GDP in 2020 and about 20% of GDP in 2030 (Vu, 2016).Up to now, the primary market of Vietnamese corporate bonds has recorded increasing participation of businesses and credit institutions (Vuong and Tran, 2011). However, it is easy to see the gloomy situation of the corporate bond market in recent years. Among the many reasons explaining this situation, such as the limited access to corporate bond information for investors, the underdeveloped credit rating system makes it impossible for investors to be grounded. If bond prices are reasonable, etc., the liquidity of corporate bonds is both a consequence and a cause of this situation (Vuong and Tran, 2011).The article uses liquidity metrics for the bond market that are used around the world to measure the liquidity of the Vietnamese corporate bond market. Calculation results are the basis for coming to a conclusion about the liquidity of Vietnams corporate bond market. At the same time, the article also explains the current liquidity situation of Vietnams corporate bond market and proposes some solutions to increase liquidity for the current Vietnamese bond market.Research Questions: 1.What is criteria for measurement of liquidity of the corporate bond market in Vietnam? 2.How these criteria helping out to conclude the situation of liquidity of the corporate bond market in Vietnam? 2. Liquidity of corporate bonds: Measurement CriteriaThere are many indicators used to measure liquidity in the bond market. Below is a summary of commonly used indicators in the world that the research team has synthesized.(i) Amihud Index (Amihud Mandelson, 2015; Acharya et al., 2013): Measures the correlation between price movement and trading volume.(ii) Trading volume (IOSCO, 2018; GurGershgoren Authority, 2011; Eke et al.,, 2020; Li et al, 2011; Mizrach, B., 2015; Akkharaphol Chabchitrchaidol et al, 2005): Volume traded aggregated in each specific period of a corporate bond or the entire market.(iii) Turnover Index (IOSCO, 2018; Bardsley et al., 2016; Roscovan, 2012; Houweling Van 2017): Measured by the quotient between the total volume of corporate bonds delivered translation and volume of corporate bonds in circulation.(iv) Average transaction size (IOSCO, 2018; Roscovan, 2012; Houweling Van 2017): As measured by total transaction volume divided for the number of trading days.(v) Batch Trading Size (IOSCO, 2018; Acharya et al., 2013): The size of the transactions carried out in large batches, in order to facilitate trading between institutional investors Big investors get easier.(vi) Measuring Price Influence (IOSCO, 2018; Acharya et al., 2013): Assessing the impact of large lot transactions on price volatility. A highly liquid market is one in which the price of corporate bonds is not significantly affected by largelot transactions.(viii) Measuring marketmaking activity (IOSCO, 2018): Taking into account the role of intermediaries, especially market makers.(ix) Number of transactions (Acharya et al., 2013): Number of transactions executed.(x) Transaction costs (Acharya et al., 2013): The cost that investors have to pay for transactions.(xi) Composite Index (Autorite des Marches Financiers – AMF, 2015): Weighted average of 3 indicators: (i) Bidask spreads indicator (ii) ) Zero Return Indicator (iii) Price impact indicator or Amihud index.3. Method of measuring liquidity of Vietnam corporate bond market3.1 MethodsLiquidity in the Vietnamese corporate bond market is measured in both the issuing market (primary market) and the trading market (secondary market).In the primary market, this study will focus on measuring 3 indicators as follows:(i) Size of corporate bond issuance(ii) Outstanding debt in the corporate bond market(iii) Growth rate of corporate bonds in circulationThese indicators are calculated and compared between Vietnams corporate bond market and 7 other countries: Thailand, Singapore, Philippines, Malaysia, Indonesia, Korea, and Japan.In the secondary market, on the basis of the above research overview on the criteria to measure the liquidity of the corporate bond market and the data that can be collected from the Vietnamese market and comparison countries, research will focus on assessing the liquidity of the corporate bond market in Vietnam based on the following two criteria:(i) Trading volume and trading volume growth rate(ii) Rotation coefficientThese indicators are calculated and compared between Vietnams corporate bond market and 5 other countries: Thailand, Malaysia, Indonesia, Korea, and Japan. Particularly for the two indicators calculated for the Vietnamese market, because there is no data related to the corporate bond trading volume, the authors use the volume of government bonds traded instead.All 6 indexes will be calculated at the following times: March 2018; June 2018; September 2018; December 2018; March 2019; June 2019; September 2019; December 2019; March 2020; June 2020; September 2020.
Liquidity of the corporate bond market in Vietnam Abstract: The paper has proposed three criteria to measure the liquidity of the bond market At the same time, the study also collects data and compares it with many countries around the world After analyzing and evaluating, the research has pointed out some key points that cause problems related to liquidity Finally, the paper proposed a group of solutions, which emphasized the importance of enhancing information transparency in the market and the appearance of reputable rating agencies Keywords: Vietnam corporate bond market, corporate bond, liquidity Problem statement Vietnam strives to bring the outstanding debt in the bond market to about 45% of GDP by 2020 and about 65% of GDP by 2030, of which the outstanding debt of the corporate bond market will reach about % of GDP in 2020 and about 20% of GDP in 2030 (Vu, 2016) Up to now, the primary market of Vietnamese corporate bonds has recorded increasing participation of businesses and credit institutions (Vuong and Tran, 2011) However, it is easy to see the "gloomy" situation of the corporate bond market in recent years Among the many reasons explaining this situation, such as the limited access to corporate bond information for investors, the underdeveloped credit rating system makes it impossible for investors to be grounded If bond prices are reasonable, etc., the liquidity of corporate bonds is both a consequence and a cause of this situation (Vuong and Tran, 2011) The article uses liquidity metrics for the bond market that are used around the world to measure the liquidity of the Vietnamese corporate bond market Calculation results are the basis for coming to a conclusion about the liquidity of Vietnam's corporate bond market At the same time, the article also explains the current liquidity situation of Vietnam's corporate bond market and proposes some solutions to increase liquidity for the current Vietnamese bond market Research Questions: What is criteria for measurement of liquidity of the corporate bond market in Vietnam? How these criteria helping out to conclude the situation of liquidity of the corporate bond market in Vietnam? Liquidity of corporate bonds: Measurement Criteria There are many indicators used to measure liquidity in the bond market Below is a summary of commonly used indicators in the world that the research team has synthesized (i) Amihud Index (Amihud & Mandelson, 2015; Acharya et al., 2013): Measures the correlation between price movement and trading volume (ii) Trading volume (IOSCO, 2018; Gur-Gershgoren & Authority, 2011; Eke et al.,, 2020; Li et al, 2011; Mizrach, B., 2015; Akkharaphol Chabchitrchaidol et al, 2005): Volume traded aggregated in each specific period of a corporate bond or the entire market (iii) Turnover Index (IOSCO, 2018; Bardsley et al., 2016; Roscovan, 2012; Houweling & Van 2017): Measured by the quotient between the total volume of corporate bonds delivered translation and volume of corporate bonds in circulation (iv) Average transaction size (IOSCO, 2018; Roscovan, 2012; Houweling & Van 2017): As measured by total transaction volume divided for the number of trading days (v) Batch Trading Size (IOSCO, 2018; Acharya et al., 2013): The size of the transactions carried out in large batches, in order to facilitate trading between institutional investors/ Big investors get easier (vi) Measuring Price Influence (IOSCO, 2018; Acharya et al., 2013): Assessing the impact of large lot transactions on price volatility A highly liquid market is one in which the price of corporate bonds is not significantly affected by large-lot transactions (viii) Measuring market-making activity (IOSCO, 2018): Taking into account the role of intermediaries, especially market makers (ix) Number of transactions (Acharya et al., 2013): Number of transactions executed (x) Transaction costs (Acharya et al., 2013): The cost that investors have to pay for transactions (xi) Composite Index (Autorite des Marches Financiers – AMF, 2015): Weighted average of indicators: (i) Bid-ask spreads indicator (ii) ) Zero Return Indicator (iii) Price impact indicator or Amihud index Method of measuring liquidity of Vietnam corporate bond market 3.1 Methods Liquidity in the Vietnamese corporate bond market is measured in both the issuing market (primary market) and the trading market (secondary market) In the primary market, this study will focus on measuring indicators as follows: (i) Size of corporate bond issuance (ii) Outstanding debt in the corporate bond market (iii) Growth rate of corporate bonds in circulation These indicators are calculated and compared between Vietnam's corporate bond market and other countries: Thailand, Singapore, Philippines, Malaysia, Indonesia, Korea, and Japan In the secondary market, on the basis of the above research overview on the criteria to measure the liquidity of the corporate bond market and the data that can be collected from the Vietnamese market and comparison countries, research will focus on assessing the liquidity of the corporate bond market in Vietnam based on the following two criteria: (i) Trading volume and trading volume growth rate (ii) Rotation coefficient These indicators are calculated and compared between Vietnam's corporate bond market and other countries: Thailand, Malaysia, Indonesia, Korea, and Japan Particularly for the two indicators calculated for the Vietnamese market, because there is no data related to the corporate bond trading volume, the authors use the volume of government bonds traded instead All indexes will be calculated at the following times: March 2018; June 2018; September 2018; December 2018; March 2019; June 2019; September 2019; December 2019; March 2020; June 2020; September 2020 3.2 Data The study exploits the following data groups: (i) Corporate bond issuance volume in Vietnam market and comparator countries (ii) Bond issuance volume (including corporate bonds and government bonds) of the whole market in Vietnam market and comparison countries (iii) Government bond trading volume in Vietnam market (iv) Corporate bond trading volume of comparable countries (v) Trading volume of bonds (including corporate bonds and government bonds) of the whole market in the markets of the comparator countries (vi) GDP value of Vietnam and comparable countries Results 4.1 The scale of issuance of corporate bonds in Vietnam is still modest As of August 2020, the scale of issuance of corporate bonds in Vietnam was only 6.45% compared to 6.73% of Japan, 15.15% of Indonesia, 20.69% of the Philippines, 28 35% of Thailand, 39.50% of Singapore, 47.39% of Malaysia and 58.26% of South Korea The market debt balance is also at this time at only 1.48%, compared to 2.89% of Indonesia, 7.07% of the Philippines, 14.21% of Japan, 21.33% of Thailand, 33.54% of Singapore, 46.30% of Malaysia, and 73.24% of Korea It can be seen that Vietnam's corporate bond market has just reached a much lower scale than the target set in the development roadmap of Vietnam's bond market to 7% of GDP by 2020 and 20% by 2030 more than 20% compared to the general level of the region However, in recent times, Vietnam's corporate bond market has experienced remarkable development with an average growth rate higher than that of other countries in the region From September 2018 to September 2019, the value of corporate bonds issued in Vietnam increased by 4.31%, from $104.35 billion to $104.67 billion In the period from September 2019 to September 2020, the value of corporate bonds issued in Vietnam increased from 104.67 billion USD to 115.3 billion USD, the growth rate reached 28.20% - much higher than Thailand (16.19%), Philippines (13.05%), Malaysia (12.42%) or Korea (5.73%) In fact, the data on the Ho Chi Minh City Stock Exchange Ho Chi Minh City shows that Vietnam's corporate bond market currently records the active participation of many businesses There are more and more new issuers, even unlisted units such as Anco, TTC Edu besides wellknown enterprises like Vingroup, CII, or HIFC (Linh 2020) 4.2 Liquidity in the secondary market of Vietnamese corporate bonds is very low Finding out the reason for this situation, the research team found that there are main groups of causes as follows: Firstly, the weakness of both supply and demand of corporate bonds Regarding supply, Vietnamese enterprises still maintain the habit of raising capital through bank credit because they are not required to disclose information fully and rigorously like issuing bonds Therefore, most Vietnamese enterprises are still afraid of long-term capital mobilization such as corporate bonds For investors, corporate bonds are subject to great competition from many fast-growing and profitable investment channels such as real estate and securities Second, there is a lack of reputable valuation/rating organizations and professional bond issuance advisory organizations According to statistics of the Asian Development Bank (ADB) (2018), Vietnam currently does not have reputable credit rating and valuation organizations This causes difficulties in valuing debts in the debt trading process and also limits the development of the corporate bond market because there are no certain "benchmarks" for investors and the bond issuer determines the appropriate bond price Investors only consider buying shares of businesses they trust, and many companies issue bonds privately to strategic shareholders, not to the public Third, lack of market makers In Vietnam's bond market, according to Decree 95/2020/NDCP stipulating the issuance, registration, custody, listing, and trading of government debt instruments on the stock market, makers The market has a prominent interest in participating in government bond auctions by the Ministry of Finance and other investors who want to buy bonds must go through market makers In addition, market makers can use information extracted from the bond market information system of the Hanoi Stock Exchange However, also because the development level of the bond market in general and the corporate bond market, in particular, is still low, participating in the market is accepted with a burden of obligations (such as having to buy a large number of bonds every year) The government often makes an offer to buy or sell bonds with a firm commitment, ) and takes great risks Therefore, investors, especially institutional investors such as banks or securities companies, are not "interested" in this role Conclusions and recommendations It can be seen that the liquidity of Vietnam's corporate bond market in the period 2007-2020 has improved significantly This is reflected in the positive movement of indicators measuring liquidity in the market, including Trading Volume and Turnover Ratio However, when compared with other countries in the region and the issuance size of the market, it can be seen that the liquidity of Vietnam's corporate bond market is very low in both the primary market and the secondary market The goal is to bring the outstanding debt of the bond market to about 45% of GDP by 2025 and about 65% of GDP by 2030, of which the outstanding debt of the corporate bond market will reach about 7% of GDP by 2020 and about 20% of GDP by 2030, is really a big challenge for the whole financial market of Vietnam (ABO 2021) The above analysis shows that the liquidity of the corporate bond market is low mainly due to reasons related to the competition of many fast-growing and profitable investment channels such as real estate, securities as well as the limited legal document system, and especially the lack of reputable valuation and rating agencies and professional underwriting consulting organizations, and market makers To improve the liquidity of the corporate bond market in Vietnam in the coming time, according to the authors, it is necessary to implement a number of solutions as follows It is necessary to develop a plan to develop the corporate bond market, according to which it is necessary to enhance transparency as well as promote liquidity for the market, increase capital mobilization for the centralized market Besides, associated with the process of restructuring the stock market to have a solution suitable to the characteristics of the Vietnamese market, reforming the issuance, developing the market platform system, especially the information system Second, to encourage and facilitate the birth and development of credit rating companies for all corporate bond issuances Third, diversify investors and encourage the development of market makers in the corporate bond market Currently, the issuance of corporate bonds in Vietnam is mainly private placement and the investors participating in the market are mainly organizations such as commercial banks, securities companies References Vo, A 2016, “Vietnam-Human Capital as a Key Driver for Economic Growth-An Investigation of Vietnam’s Economy and Binding Constraints Final Country Report” Ann Vo (Final grade: A-), 4, 22 Vuong, Q H., & Tran, T D 2011, “Vietnam’s corporate bond market, 1990-2010: Some reflections”, The Journal of Economic Policy and Research, 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