financial institutions and markets topic vietnamese stock markets

The definition of stock and classification: 4Organizations trading on the stock market 8Organizations related to the stock market 9Classification according to the process of capital turn

VIETNAM INTERNATIONAL UNIVERSITY - HO CHI MINH CITYINTERNATIONAL UNIVERSITY

SCHOOL OF BUSINESS

FINANCIAL INSTITUTIONS ANDMARKETS

VIETNAMESE STOCK MARKETS

Lecturer: Associate Prof Vo Thi Quy

Written by

Member:

Table of content

2.1 The definition of stock and classification: 4

Organizations trading on the stock market 8Organizations related to the stock market 9

Classification according to the process of capital turnover 9

Classification according to the organizational form of the market 11

Over the Counter Market (OTC: Over the Counter Market) 12

3 VN - Index, VN30, and Stock exchange centers in Vietnam12

VN - Index: Expressing investor sentiment 13VN-Index: Shows the volatility of the economy 14VN-Index: Reflects accurately the movements of stocks on the stock

VN-Index: Shows changes and shifts in the economic structure 15

HoSE (HSX): Ho Chi Minh Stock Exchange 16

Put-through trading and stock order matching 16

Daily trading limit at 03 exchanges (compared to the Reference Price) 19Types of stock orders: ATO, ATC, LO, MP 19

At The Opening Order (ATO) & At The Close Order (ATC) 19

Shanghai lockdown and the reason why the stock market went down

1 Introduction:

The article focuses on the basic contents of the Vietnamese stock market,giving sufficient knowledge about stocks including an overview of the Vietnamesestock market, VNINDEX, stock centers exchange, and IPO in Vietnam As for thecurrent situation, the article presents basic and important issues related toVietnam's stock market.

2 The overview of Vietnam Stock Markets:

2.1 The definition of stock and classification:

A stock (also known as equity) is a security that represents the ownership of

a fraction of a corporation This entitles the owner of the stock to a proportion ofthe corporation's assets and profits up to what quantity of stock they own As youacquire more stock, your ownership stake within the company becomes greater.Whether you say shares, equity, or stock, it all means the identical thing.

Stock classification:

There are two common types of stock:

● Common Stock: Represents a type of stock that pays a variable dividendand offers the holder voting rights

● Preferred Rights: Represents a type of stock that pays a fixed dividend buthas no voting rights.

Preferred & common stocks: The key difference between common and

preferred stocks is in the promised dividend payments While preferred stockspromise investors that a fixed amount will be paid as dividends annually, thecommon stock does not come with this promise For this reason, the price ofpreferred stock is not as volatile as that of common stock Another key differencebetween common stock and preferred stock is that the latter enjoys greater prioritywhen the company is distributing surplus money However, if the company is

getting liquidated – its assets are being sold off to pay off investors, then theclaims of preferred shareholders rank below that of the company’s creditors, andbond- or debenture-holders Another distinction is that preferred shareholders maynot have voting rights unlike holders of common stocks.

2.2 The background of Vietnamese Stock:

2000 Ho Chi Minh City Stock Exchange Trading Center was established VN-Indexcommences at same time.

2005 The Hanoi Stock Exchange (HNX) was established.

2006 Vietnam stock market boom gains momentum, increased speculation and foreign capitalinflows Gains of circa 150% in 2006.

2007 On August 8th, 2007, the Ho Chi Minh Stock Exchange was officially opened.

2008 VN-Index has a major stock market crash From the peak in 2007 to lows in early 2009fell more than 70% Inflation surges.

2009 Unlisted Public Market (UPCoM) was founded Hanoi Stock Exchange (HNX) handlesbond trading.

2011 Vietnam devalues currency and inflation pressures persist.

2013 Fallout persists from distorted lending practice in previous years with SOEs, propertymarket and banks still under pressure.

2014 Vietnam stock market stabilized from 2010-2014 Proactive steps from the governmentto tackle problems in the banking sector Inflation slows dramatically HOSE and varioussub-indices launched.

2015 Relaxation of foreign ownership caps on certain companies.

2018 The Vietnam stock market hit a peak in early 2018 after almost doubling in the space of2 years Export and trade balance story shows great improvement FDI memorizing.Market suffers a correction later in the year.

2019 Launch of government bond futures contract.

2020 Strong bounce back in Vietnam stock market after covid crash, led by surge in domesticretail interest.

2021 Vietnam stock market boom since covid crash continues with continued low interestrates, despite Vietnam being hard hit from covid delta variant.

2.3 Participants in Vietnam stock market

There are four objects are participating in the Vietnam stock market, including:

a IssuersEnterprise:

Shares are certificates issued by a joint-stock company, book entries, orelectronic data verifying the ownership of one or more shares of that business,according to Clause 1 of Article 121 of the Enterprise Law 2020 Shares can onlybe issued by joint-stock businesses The stock market is an essential route forfirms to mobilize huge amounts of medium and long-term capital Companiesissue stocks to raise paid-up or share capital, expand their business, or start newactivities There are significant differences between buying shares directly fromthe firm when it is issued (in the primary market) and buying shares throughanother shareholder (on the secondary market) The corporation issues shares inexchange for money.Shares are certificates issued by a joint-stock company, bookentries, or electronic data verifying the ownership of one or more shares of thatbusiness, according to Clause 1 of Article 121 of the Enterprise Law 2020 Sharescan only be issued by joint-stock businesses The stock market is an essential routefor firms to mobilize huge amounts of medium and long-term capital Companiesissue stocks to raise paid-up or share capital, expand their business, or start newactivities There are significant differences between buying shares directly fromthe firm when it is issued (in the primary market) and buying shares throughanother shareholder (on the secondary market) The corporation issues shares inexchange for money.

b Investors

● Individual investors:

Individual investors are individuals with capital who engage in securitiestrading and benefit from it Individual investors should pay special attention to thestock market since the danger of investment loss is quite high The bigger the risk,the larger the reward Individual investors should modify their level ofengagement based on the features of each type of market.

● Institutional investors:

Individual investors create investment entities such as investmentbusinesses, insurance companies, social insurance funds, financial companies, andcommercial banks (usually securities investment funds) Investing through theseorganizations provides the advantage of diversifying the portfolio and allowingskilled specialists to make investment decisions Financial corporations are asignificant aspect of institutional investors When securities companies andcommercial banks acquire securities for themselves, they can also becomeprofessional investors.

T-bills and Treasuries are frequently chosen by institutional investors suchas banks and insurance firms Commercial banks and securities trading hubs areoften the conduits for the retail bond market.

Financial businesses can also use their money to invest and trade insecurities for profit.

=> The distinction between institutional and individual investors isimportant for assessing the legal validity of a transaction, influencing businessstrategy, and extending an organization's market of the securities industry.Furthermore, when it comes to legislative actions, the creation of regulations,criteria, and standards for institutional and private investors differs: many nations'laws, including Vietnam's, show a predisposition to protect individual investors.

c Organizations trading on the stock market

● Securities companies: Underwriting, brokerage, self-trading,investment capital management, and securities advice are allservices provided by these firms Businesses will require a licensefrom a competent body as well as sufficient funds to do so.

● Securities investment fund: is a fund created using an investor'smoney to make money by investing in securities or other types ofinvestment assets, such as real estate, and in which the investor hasno day-to-day influence over the fund's investment decisions.

d Organizations related to the stock market

● State management establishment: This is a stock market-related bodywhose mission is to safeguard investors' interests and guarantee the stockmarket's stability.

● Stock Exchange: This place exists to facilitate trading activity and to setregulations on securities activities.

● Vietnam Association of Securities Business (VASB): is aself-governing organization that employs a number of measures tosafeguard the interests of its members and enterprises in the securitiessector Encourages corporate investment, investigates and resolves disputes,and collaborates with governments and many agencies to handlesecurities-related concerns.

● Vietnam Securities Depository Center (VSD):is a securities depositoryand clearing company that receives and stores securities clearing activities.● Securities computer service company: is a business that deals with

securities These firms only formed once the stock market had matured to apoint where it could be automated.

● Securities Funding Institutions: are non-profit organizations dedicatedto promoting, expanding, and growing the stock market.

● Company credit rating:Its purpose is to examine a company's capacity topay both capital and interest in order for investors to consider makinginvestment decisions.

2.4 Classifications of Vietnam stock market

a Classification according to the process of capital turnover

In this way, the market is divided into primary market and secondary market.

Primary market:

● The primary market is where securities are originally issued and sold to thepublic (hence also called the issue market) The issue price is the price atwhich securities are sold on the primary market, and the securities areknown as newly issued securities.

● The issuer's primary market is the market that supplies capital Issuers havemore resources to reinvest in production and the economy, expandingconsumption capacity, due to the issuing of securities Solve the capitalsupply and demand imbalance.

Secondary market:

● A secondary market is a market where issued securities are traded, bought,sold, and exchanged for the purpose of making money, transferringinvestment capital, or moving social assets.

● The secondary market makes issued securities more liquid This boosts thesecurity's attractiveness while lowering the danger for investors Increasedsecurity liquidity supports the transition of capital from short-term tomedium- and long-term maturity, as well as effective capital allocation.● The price of securities issued in the primary market is determined by the

secondary market The secondary market is the marketplace wherebusinesses are valued.

● The secondary market creates a reference foundation for issuers andinvestors by providing a portfolio of capital costs corresponding to varyingdegrees of risk of each investment choice through price determination theprimary market's investors

● Capital will be allocated to enterprises that are the most efficient in theiroperations, boosting socio economic efficiency.

=> The major distinction between the primary and secondary markets is that in theprimary market, savings are drawn to economic development investment Thetransaction in the secondary market does not enhance the quantity of capitalinvestment or attract new financial sources; rather, it simply redistributesownership of securities from one entity to another, guaranteeing security liquidity.The primary and secondary markets have a strong relationship and mutuallysupport each other There are no securities to circulate in the secondary market ifthere is no primary market In contrast, if there is no secondary market, theprimary market will struggle to function properly The presence of a secondarymarket aids in the liquidity of securities, boosting their appeal and, as a result, thecapital mobilization potential of securities issuers Managers' ultimate objective isto expand capital mobilization operations in the primary market, because moneycan only transfer from savers to investors in this market.

While the flow of capital on the secondary market is just fictitious, investors haveno direct influence on capital accumulation and concentration.

b Classification according to the organizational form of themarket

According to this classification, the stock market is organized intoExchanges, a decentralized stock market, and a free market.

Stock Exchange (Stock Exchange)

● The Stock Exchange is a securities trading market conducted at acentralized location.

● Securities listed and traded on the Stock Exchange are usually securities oflarge, reputable companies that have undergone many challenges in themarket and meet the requirements and listing standards set by the StockExchange.

● The Stock Exchange is strictly organized and managed by the StateSecurities Commission The transactions are regulated by the law onsecurities and the securities market.

Over the Counter Market (OTC: Over the Counter Market)

● A decentralized stock market is a market without a centralized tradingcenter, it is a network of brokers and dealers of securities buying andselling with each other and with investors, trading activities of thedecentralized stock market is held at the counters (exchanges) of banks andsecurities companies through telephones or large-scale computers.

● The trading volume of this market is often many times larger than that ofthe Stock Exchange.

● The decentralized stock market is managed by the Exchange and theAssociation of Securities Traders.

Free market

The free market is a market for trading all types of shares issued throughdirect negotiation and agreement between buyers and sellers at any place, atany time.

3 VN - Index, VN30, and Stock exchange centers inVietnam

a VN - Index

What is VN - Index?

VN - Index is an index that shows the price movement trends of all stockslisted and traded on the Ho Chi Minh stock exchange (HoSE) It helps comparethe current market capitalization to the underlying market capitalization on thebase date VN-Index was established on 28/7/2000 and the initial base value is 100points.

The formula of Vn - Index

VN-Index = (Total market value of currently listed shares / Total value ofunderlying listed shares) x 100

● P1i: Current market value of stock i● Q1i: Number of shares i currently listed

● P0i: Market value on the base date of 28/07/2000 of stock i● Q0i: Number of shares i listed on-base date

● i= 1, 2, 3, 4,…n

For example, the VN-Index on October 19, 2021, is 1395.33 points Thismeans that the total market value of all shares listed on HoSE is 13.9533 times theoriginal value on July 28, 2000.

Meaning and limitation of VN - Index

VN - Index: Expressing investor sentiment

Stock prices are affected mainly by the law of supply and demand in themarket Therefore, the VN - Index reflects the psychology and attitude of investorstoward the economic situation When the economy is doing well, traders will haveconfidence in future growth, so they trade more actively That is why it leads to apotent increase in the VN - Index and vice versa.

For Example: At the end of June 2021, the VN-Index reached the highestlevel in history and reached 1400 points Thereby showing that the stock market isbecoming a "craze" from the beginning of 2021 until now with many new

investors This shows investors' optimism and they will continue to invest morecapital in the market.

VN-Index: Shows the volatility of the economy

● The economy also develops accordingly when businesses operateefficiently and grow steadily When the economy develops, the stockmarket also grows Therefore, investors will pay more attention to thesestocks and that is the reason for the increase of the VN-Index.

For example, the period from 2016 to 2018 is the period when the economyhas positive developments in Vietnam VN-Index increased sharply from600 to more than 1000 points due to the high number of stocks listed on theexchange.

● VN-Index fluctuates and stays low when operating in a recession ordeclining market.

For example: Around the end of 2017, when there was a global economiccrisis around the world The stock market value was heavily affected As aresult, the stock prices "dipped without stopping".

● Therefore, A market with a stable macro-economy will help VN-Indexdevelop more stably.

VN-Index: Reflects accurately the movements of stocks on the stockexchange

VN - Index most accurately reacts to changes in market value Movementsin stock prices will change the value of the index At the same time, VN - Index iscompared in percentage terms with the previous trading session.

VN-Index: Shows changes and shifts in the economic structure

If the economy has a restructuring of sectors, the stock prices of each sectorwill change Therefore, the stock index is directly affected VN-Index will showthe structural movement of the whole Vietnamese economy.

For example: Previously, in 2007 when the economy started to restructureand entered the recovery phase Through indexes, especially VN-Index, havegiven investors signs of changes in the market Therefore, this index plays a bigpart in helping investors to recognize structural changes as well as marketmovements.

b VN30 - Index

VN30-Index was established by HoSE and started to be used on06/02/2012 This index is the result of measuring the change in marketcapitalization of 30 stocks listed on HoSE, which have the highest marketcapitalization and liquidity Specifically, this group of 30 stocks accounts for 80%of the total market capitalization and 60% of the total market trading value.

VN30 is considered a compromise solution between the urgent requirementof the market for an index that more accurately reflects stock price fluctuations Inaddition, it is also a necessary preparation of a foundation for the Department'sstrategy of developing new products such as derivative products and newinvestment funds in the future This is also the basis for the development of indexinvestment funds, and ETFs, leading to an increase in liquidity in the market.

c Stock Exchange Center in Vietnam

VNX: Vietnam Stock Exchange

VNX was established through Decision No 37/2020/QD-TTg of the PrimeMinister VNX's headquarter is located in Hanoi, charter capital is 3000 billiondongs It is a parent company organized in the form of a one-member limitedliability company with 100% capital held by the State Subsidiaries under VNX