Vietnam stock market

1.1 Vietnam Stock Market Stock market supports firms to mobilize funds for their operations and helps investors to make more money from their investments It plays an important part in any country’s financial system assisting in allocating resources efficiently Vietnam stock market was born when Ho Chi Minh Stock Exchange (HOSE) was first established on 20th July 2000 At that time, there were only listed companies on HOSE: REE and SAM and some Government bonds During the period from 2000 and 2005, the stock market did not appealed to investors due to lack of goods and small firms There was a stock fever in 2001 which led to the peak of 571.04 points of VN index Except for that time, the index reached the maximum of only 300 points On 8th March 2005, Hanoi Stock Exchange came into operation Year 2005 witnessed the number of listed firms increasing to 32 According to State Securities Commission of Vietnam, the total market capitalization of Vietnam Stock market at the end of 2005 was 40,000 billion VND which accounted for 0.69% of GDP Beside centralized exchanges (HOSE and HNX), Vietnam also has OTC (over-the-counter) market where unlisted stocks are traded Figure Error! No text of specified style in document : Vietnam Stock Market fact and figures (2000-2005) 2006 witnessed a breakthrough in the development of Vietnam stock market Trading activities rocketed on all markets: HNX, HOSE and OTC Vietnam ranked 2nd worldwide in stock market growth which was approximately 60% There was a great flow of money into the markets as domestic and foreign investors were all optimistic Just within one year, market capitalization increased fifteen-fold VN-Index went up by 144% and HNX-Index went up by 152.4% At the end of the year, the market value reached 13.8 billion USD, occupying 22.7% GDP Foreign investment in securities was billion USD, about 16.4% of total market value VN-Index achieved a record of 809.86 points while HNX-INDEX rose to 260 points On 11 January 2007, Vietnam officially joined World Trade Organization (WTO) The event considerably influenced stock market The peak of over 1,170 points of VN-Index was reached and HNX-Index had the highest of 459.36 points in 2007 during when the market broke out The effectiveness of regulation on stock market on 1st January 2007 encouraged growth of the market and gave foreign investors opportunities to join Vietnam equity market There was a considerable fluctuation in prices during trading sessions this year In the final session of the year, VN-Index reached 927.02 and HNX-Index reached 323.55 points 2008 was an unsuccessful year for the stock market The major reason is due to global recession Housing bubble collapsed in the United State followed by financial market then crisis spread to the whole US economy and other countries including Vietnam Foreign investors withdrew money out of Vietnam equity market as well as other frontier market By contrast, Vietnamese government motivating privatization, especially large and efficient corporations and secondary offerings of many stocks and bonds led to excess supply All resulted in low liquidity and reduce in market price (even below par value) Generally speaking, 2008 could be divided into phases: For the first half of the year, market was downward as strongly affected by macroeconomic conditions June to September was the phase of short-term recovery In the last three months, market went back to long recession The following year experienced an impressive recovery of stock market During 2009, VN-Index rose by 171.96 points, from 312.49 to 494.17 equal to 58% Similarly, index in HNX increased by 60.9% If comparing the bottom of 78.06 points to the highest of 218.38 in the year, the index went up almost times Also in June 2009, Hanoi Stock Exchange (HNX) launched UPCOM (Unlisted Public Company Market) UPCOM is the place at which stocks and convertible bonds of public firms which is not listed on centralized exchanges are traded Moreover, UPCOM-Index was introduced as a useful tools for investors to get an overview of prices in UPCOM market From 10 companies initially, UPCOM has well-developed and until 31th December 2011 it contained 131 firms UPCOM is considered a safe playground for investors who wish to avoid risks in grey market and it plays as an important part in the process of creating a modern OTC market in Vietnam Figure Error! No text of specified style in document : UPCOM-Index (20092015) (Source: Bloomberg) In 2010, prices of most stocks declined End of the year, VN-Index closed at 484.66, decreasing by 2% while HNX-Index closed at 114.24, decreasing by 32.3% in comparison with 1st January The reason was that the economy became unstable due to inconsistent decisions of the Government on fiscal policies aiming to control inflation rate and interest rate race between commercial banks Stock market did not recover until November For the first time there was market manipulation activities existing in Vietnam stock market Furthermore, merge and acquisition (M&A) activities also increased in number during the year At the beginning of 2011, the central bank adjusted exchange rate to increase by 9.3% and inflation rate shot up in February These factors caused equity market to plunge After a short time increasing from August to September, market indexes continued to dropped since domestic economy was still gloomy and influenced by the pessimistic global economy when public debt in Europe was not solved Compared to the beginning of the year, end-of-year VN-Index dipped by 27.46% while HNX-Index even fell by over 48% The value of a session on each exchange went down by approximately 60% relative to the previous year While 2011 was not remembered as a satisfactory year of stock market, 2012 was a remarkable year In the first five months, both VN-Index and HNXIndex rose by above 40% Unfortunately, in the second half of 2012, the upward trend in stock market reversed as the financial system faced some difficulties The percentage of non-performing loans in the debt structure of banks increased sharply which made firms could not approach funds from commercial banks although interest rates fell greatly As no fund was mobilized, businesses was unable to keep on operating normally Stock prices decreased reflecting disappointment of investors in companies’ prospect This also led to losses of securities companies during this period As reported, there were 50 percentage of securities firms suffered from losses Moreover, heads of some large bank were arrested and investigated which damaged reputation and made bank stocks plummeted Therefore, for the first time in history, HNX-Index reached the bottom of 50.33 points, decreasing by 36% while VN-Index decreased by 20% Turn to 2013, the economy was much more stable when government policies worked: Inflation rate was held back and IIP (Index of Industrial Production) increased by 5.6% comparing with same period last year Meanwhile foreign exchange market did not fluctuate and foreign currency reserves increased Besides, adjustments such as decrease in taxes on stock transfer, market order application, extension of trading time and increase in margin had positive effects on stock market VN-Index and HN-Index rose 23% and 13% respectively relative to the end of 2012 Market capitalization was 964 trillion VND (199 trillion VND higher than last year) which occupied 31% of GDP Furthermore, State Securities Commission of Vietnam also allowed for the foundation of open-ended funds There were 10 open-ended funds open this year: Vina Wealth funds, MBBF, BFED, VCBF… The growth rate of Vietnam in 2014 was 5.9% which was higher than the target rate due to increase in exports Interest rate fell benefitting businesses Although there were some unexpected events like high intension in Bien Dong, sharp decrease in oil price, stock market still saw a positive picture VN-Index hit the top of 640.75 again after years on rd September while HNX-Index had the highest of 92.99 points on 24th March after years Up to 8th December 2014, VNIndex went to 571.68, increasing by 13.3% and HNX-Index reached 87.17, increasing by 28.5% in comparison with last day of 2013 On th July, the first domestic exchange traded fund (ETF) called E1VFMVN30 was born which mimics HSX30 with the scale of 202 billion VND Three months later, the second ETF imitating HNX30 was permitted to be offered to investors This was a chance for investors who prefer passive investment strategy to participate in the market Foreign investors could use these ETFs as an indirect tool to invest in stocks that they cannot own directly Moreover, this year, a project for constructing and developing derivatives market in Vietnam was approved marked a next step in the development of Vietnam financial market in the near future Figure Error! No text of specified style in document : VN-Index (2000-2015) (Source: Bloomberg) Above all, after 15 years in operation, the biggest contribution of Vietnam stock market is help to create successful businesses with strong support from a channel supplying an unlimited source of funds Even though it cannot be denied that Vietnam stock market does have weaknesses (the existence of manipulation, insider trading, etc.), it is obviously an essential place where businesses can mobilize funds in medium and long term other than bank loans which can be costly for small firms By privatizing state-owned enterprises and listing them on centralized exchanges as well as issuing Government bonds annually since September 2009, stock market has assisted banks in mobilizing a great amount of funds for Government and businesses According to Ho Chi Minh Stock Exchange, until now there are 307 stocks, close-ended funds, one exchange traded fund (ETF) and 38 bonds listed The total value of market capitalization on HOSE were 985 trillion VND in the end of 2014, accounting for 88% of market value in the whole stock market It also made up 25% of Gross Domestic Product (GDP) in 2014 Especially, domestic stock market plays an integral part by supporting Vietnamese corporations in approaching international financial markets It also attracts foreign financial institutions to join Vietnam stock market A number of certificates have been issued in foreign currencies (foreign bonds) to sell in other financial markets By doing this, stock market becomes a channel where funds from foreign institutional investors can flow into the economy Also in reverse, Vietnamese investors are able to find safe and efficient investment in other economies In fact, although firms listed in stock market come under pressure when they have to publish all information about their operations to all investors as well as have outside auditors auditing their financial statements semiannually or annually, this is, however, a motivation for firms to run efficiently Through stock market, firms not only attract funds with low costs but also find some big international investors who can help them gain more experiences in governance, administration and operation based on international standards A number of typical companies successful with the help of Vietnam stock market that could be mentioned are: Vinamilk (VNM), Kinh Do (KDC), Hau Giang Pharma Corp (DHG), PNJ, Saigon Securities Inc (SSI), Tien Phong Plastic Company (NTP)… They usually increase equity through market to upgrade machines, update the latest technology and expand their factories Figure Error! No text of specified style in document : Number of listed firms on Vietnam Stock Market throughout history ... race between commercial banks Stock market did not recover until November For the first time there was market manipulation activities existing in Vietnam stock market Furthermore, merge and acquisition... of Vietnam stock market is help to create successful businesses with strong support from a channel supplying an unlimited source of funds Even though it cannot be denied that Vietnam stock market. .. domestic stock market plays an integral part by supporting Vietnamese corporations in approaching international financial markets It also attracts foreign financial institutions to join Vietnam stock