LV Thạc sỹ_Proposal to apply ETF product into Vietnam stock market

NATIONAL ECONOMICS UNIVERSITY ADVANCED EDUCATIONAL PROGRAM Proposal to apply ETF product into Vietnam Stock Market Acknowledgement My thesis could not have been completed if it were not for the great deal of help and encouragement I am exceedingly grateful to all the people for giving me such huge support throughout my internship First and foremost, I would like to express my profound gratitude to my instructor, Ms …, for her dedicated guidance from the very beginning of forming the idea of this thesis Despite the busy time schedule, she still set aside some time reading my thesis and gave me all the detailed constructive comments as well as shared with me her thoughts from the professional approach to help me improve the thesis I also would like to send my thanks to my internship guide, Ms …, and all the executives working for Research and Investment Advisory Faculty of Saigon Securities Incorporation (SSI) Had it not been for their suggestion and enthusiastic support in providing the documents and explaining new concepts, I would not have been able to continue and complete this thesis successfully In addition to direct instruction from my teacher and internship guide, the indirect support from Advanced Program Faculty staff cannot be ignored They gave me straight instruction, reminded me of the internship schedule to keep me updated, supported with referring documents, and were always available for help Last but not least, I would like to thank all of my devoted family members and friends for their care and love that kept me going all through the internship course and thesis preparation Sincerely convey my deep gratitude again for all of the support and inspiration Table of Contents Acknowledgement Table of figures Abbreviation Chapter 1: Introduction 1.1 Rationale 1.2 Research objective 1.3 Research method 1.4 Research scope Chapter 2: Literature review 2.1 Overview of Exchanged-traded funds (ETF) 2.1.1 Definition and characteristics of ETF 2.1.1.1 Definition 2.1.1.2 Characteristics 2.1.2 Types of ETF 14 2.1.2.1 Categorized based on management method 14 2.1.2.2 Categorized based on the asset portfolio 17 2.1.2.3 Categorized based on geographical region .22 2.1.3 Comparison between ETF and other investment tools 23 2.1.4 The growth of the ETF Marketplace 28 2.2 Creating and redeeming ETF 29 2.2.1 Creation 29 2.2.2 Redemption 31 2.2.3 Trading mechanism 32 2.2.3.1 Daily portfolio composition files 32 2.2.3.2 Creation and redemption arbitrage 33 2.3 International experience 34 2.3.1 In America 34 2.3.2 In Taiwan 37 2.3.3 Lesson learnt 40 Chapter 3: Status of Vietnam stock market and conditions for applying ETF products 42 3.1 Status of Vietnam stock market 42 3.1.1 Indispensability of ETF product 42 3.1.1.1 Trading state of Vietnamese stock market .42 3.1.1.2 Activities of investment funds in Vietnam 44 3.1.2 Evaluation of the conditions 46 3.1.2.1 National development strategy 46 3.1.2.2 Legal framework 46 3.1.2.3 Technical condition requirement 48 3.1.2.4 Preparation of market participants 49 3.2 Applying ETF product in Vietnam51 3.2.1 The need for development 51 3.2.2 Rule-of-thumb for construction and general model 52 3.2.2.1 Rule-of-thumb for construction 52 3.2.2.2 General model 3.2.3 Plan of implementation 3.2.3.1 Choosing the base goods 53 54 54 3.2.3.2 Building the legal framework and technology infrastructure base 55 3.2.3.3 Training about ETF 55 3.2.3.4 Introduction of a privileged Equity Index .56 Chapter 4: Conclusion 57 Reference 58 Table of figures Table Risks and benefits of ETF 14 Table Comparison between ETF and other investment tools 23 Table Creation of ETF 30 Table Redemption of ETF 31 Table Development of ETF in terms of trading value and trading value on the Taiwan Stock Exchange 37 Table Present legislative documents of legal system in Vietnam 46 Abbreviation ETF: Exchange Traded Fund NAV: Net Asset Value AP: authorized participants Chapter 1: Introduction 1.1 Rationale Currently, products in the spot market of Vietnam are not yet diversified We now only have stocks, bonds, and closed-end funds shares traded on the two Stock Exchanges With a history of 11 years of stock market development and years of stock exchange expansion, injecting new products into the market is vital to increase the diversification of the Vietnam stock market, offering investors more choices of investment Introducing ETF is in line with the framework of Developing Stock Exchange Plan, accords with the core of Vietnam stock market Development Strategy for the period 2011-2012 To Government administrative agencies, the Proposal will help to complete the present security market model for Vietnam, assisting the administrative agencies in developing the market, fostering the liquidity and flexibility for Vietnam security market, and helping the market to continue sustainable growth To the two Stock Exchanges, introducing ETF to the trading system will raise the attractiveness of the exchanges to the public investors; increase the competitiveness of the exchanges in the domestic as well as international financial market Building more diversified investment tools is inevitable for expanding the stock market To the market participants (including mutual funds, securities institutions, individual investors), this proposal will create a whole new platform by introducing new ETF products which have various characteristics and possess stable profitability in medium term, satisfying the soaring demand and better knowledge of market participants As a result, this proposal proves feasible and necessary given the current circumstances, bringing realistic benefits to Vietnam stock market 1.2 Research objective The thesis is aimed to look deeply into the Vietnam stock market to assess the conditions and provide the recommendations for applying the ETF products in Vietnam The research primarily focuses on delivering the recommendations on structuring a feasible framework for building the ETF market on the stock exchanges It does not try to analyze or project the potential profitability of ETF product 1.3 Research method The research uses the qualitative method to assess the Vietnamese stock market, conclude the lessons, and therefore deliver the recommendations The research was carried out using the accumulated primary as well as secondary data about the Vietnamese stock exchanges from Internet and Bloomberg Information Hub and analyzing the ETF product development in other regional countries to derive the lessons necessary for Vietnam 1.4 Research scope The research is done for the purpose of implementation in the Vietnamese stock market; therefore it does not try to expand the scope to other regions or international market It focuses primarily on the current development of Vietnamese stock market, specifically the turmoil of the stock market in the latest three years, and tries its best to develop the plan in line with the development strategy of Vietnamese Stock Exchange Commission If the research mentions any other country other than Vietnam, it is only done in the fashion of referring to those markets’ lessons Chapter 2: Literature review 2.1 Overview of Exchanged-traded funds (ETF) 2.1.1 Definition and characteristics of ETF 2.1.1.1 Definition Exchange Traded Funds (ETFs) are baskets of securities that are traded, like individual stocks, through a brokerage firm on a stock exchange Shares of ETFs are traded with other investors who are also going through brokerage firms to facilitate their transactions All-day trading makes ETFs more flexible than their familiar sister open-end mutual funds, where investors must wait until the end of the day to buy or sell shares directly with a mutual fund company An ETF is usually set up either as an investment trust or an open-end mutual fund, which tracks the performance of an Index, a Commodity or a Basket of Securities ETFs can be bought and sold throughout the trading day whenever the stock exchanges are open Any way you can trade a stock, you can trade an ETF Shares can also be sold short or bought on margin That makes these investment vehicles useful for institutional investors and traders who often need to quickly hedge equity positions 2.1.1.2 Characteristics a) Risks Index-linked ETFs are subject to ‘tracking error’ risks Factors such as transaction costs, expenses, imperfect correlation between an ETF’s stocks and those in its underlying index, rounding, changes to indices, and regulatory policies may cause an 10 ETF’s performance to deviate from that of its underlying index Major sources of tracking error are: ← Transaction costs, fees and expenses will cause an underperformance over time Further premiums / discounts relative to the NAV have an influence on the performance of the ETF versus its index for periods ending on that specific date ← Optimization and replication use several techniques to create ETF portfolios to closely track the index while minimizing transaction costs Using representative sampling, an ETF typically has different weights to the index in some stocks or even omits certain stocks entirely All in all Optimization / representative sampling therefore lead to deviations, affecting relative performance ← Rebalancing of index-linked ETFs are required due to changes in the composition of the index when stocks are added or dropped The timing, market impact, and transaction costs of the changes can affect relative performance ← Non-concurrent trading hours are an issue if ETFs are traded when their underlying markets are closed For example, the Japanese market is closed while an ETF tracking the Japanese market is trading on the American Stock Exchange Given increased correlation between markets, ETFs based on the Japanese market may appear to be at a premium prior to the start of the trading day in Japan when the US market is up in anticipation that the Japanese market will rally Similarly, on a down day in the US, the ETF on the Japanese market may appear to be at a discount ← Dividend reinvestments can be an issue In accordance with the product specification, some ETFs hold dividends in cash and only pay them out to investors on a periodic basis These ETFs accumulate the dividends paid by the shares held in the fund on an ongoing basis The dividends become part of the NAV and add to the ETF assets, until the ETF pays out cash to its investors as dividend At the ETF ex-dividend date, the ETF NAV only contains the value of the underlying shares, and mirrors the value of the price index more closely The dividend payments accumulated in the NAV add to the statistical tracking error between the ETF and the underlying price index (but in a positive way: the NAV outperforms) The dividend drops incurred at the ex-date further 42 years, comparing with the total trading volume of the market The trading volume density is 6.14%, 3.01%, 3.74%, and 0.72% in 2007, 2008, 2009, 2010 respectively + of all funds had NAV decreased in the end of 2010 in comparison with the end of 2009 The remaining fund is the one established in 2010 + of funds were traded at discount (as of December 31st 2010) + All closed-end mutual funds had the market value fell below NAV The average discount rate varies significantly from 13% to 48% The lowest average discount rate is the rate of VFA fund shares due to the fact that VFA fund is recently established, thus quite open to flexible investment strategy; the highest average discount rate is the rate of VF1 fund (the first mutual fund to be listed) Looking at the nature of the activities, closed-end mutual funds, thanks to the stability of the long-term supply of capital, usually not only focus investment on listed stocks but also diversify into other types of assets such as shares in unlisted corporations or real estate Especially, after the fluctuation of the market, the assets value of almost all mutual funds plummet, thus reduce the attractiveness of this product Investors are scouring for other investment tools to diversify the investment portfolio, reducing the investment risk Meanwhile, the investment products on the Vietnamese stock market are still very basic; the available markets are still limited to spot markets (stocks, bonds, closed-end mutual funds), there has been no space for structured products or derivatives market to supply more choices as well as tools to diversify risks for international and domestic investors In the meantime, some ETF shares whose investment portfolio include some stocks listed on the Vietnamese stock market have appeared on the international stock market and experienced active trading For example: the Market Vectors Vietnam ETF (VNM), which is managed by Van Eck Global and traded on NYSE Arca (America), has been operating since August 2009; DB X-trackers FTSE Vietnam Index ETF managed by 43 Deutsche Bank and trade on London stock market has been active since established in January 2008 3.1.1.2 Activities of investment funds in Vietnam It can be said that the activities of investment in Vietnam dated long back to the period of 2003-2004 However, until now the Vietnamese stock market has only allowed for the activities of closed-end public mutual fund While 90% of the active funds in the world are open-end, not one is available in Vietnam The dynamic development period of mobilizing capital for mutual funds established under Vietnam Stock Law is from June 2006 to March 2008, when nearly 20 investment funds were registered (4 of them were public funds) This period is also the time when the Vietnam stock market experienced the most outrageous booming when it expanded strongly in both the size and the number of companies going public From March 2008 up to now, together with the economic recession, the capital mobilizing of fund management firms has incurred a lot of difficulties In the entire 2010, only investment funds were formed with the total value of mobilized capital amounting to 800 billion VND (1 of which went public), bringing the total number of available investment funds in the country to 23 (including 18 member funds and public funds) However, NAV of the funds as of December 31st 2010 is only worth 12.3 thousand billion VND, contracting by 608 billion VND (equal to -4.7%) in comparison with December 31st 2009 Of all 47 fund management firms found under Security Law, only 13 funds are allowed to establish domestic mutual funds and carry out the role of managing the funds, the others only supply the portfolio management service to investors (covering more than 300 portfolios) In terms of the nature of the capital source, 23 in-land investment funds mobilize capital mainly domestically, only one member fund under the administration of joint stock fund management firm FPT has more than 51% of capital derived from foreign investors Meanwhile, unofficial statistics indicate that the number of investment funds active in Vietnamese market is high, estimated at about more than 400, while the 44 number of funds established within the country is still quite humble, both in the quantity and size of managed capital Funds coming into Vietnam, as of the present time, mainly exist as foreign investment funds or fund management firms which are initially established in the third countries or tax heaven such as Cayman Islands, Bermuda, British Virgin Island, and then open investment funds in Vietnam as an indirect investor About the activities of member funds, in 2010, only funds generated profit, the others all incurred loss Realizing the potential of ample foreign investment flow and investors’ interest in the rapid development of Vietnamese stock market, many fund management firms have changed direction to mobilize capital from external sources for the needed capital to establish domestic funds However, the real efforts exerted to achieve this goal have not accomplished any beneficial results When it comes to the investors to choose between investing in the internally established funds, which are under the regulation of Security Law, and indirect investment in Vietnam, they are more inclined to choose the later Besides those subjective reasons that the fledgling fund management firms are still inexperienced, not yet professional, and have been operating inefficiently due to the adolescence of the domestic stock market, there are also those objective reasons about the hindrance of the investment environment that discouraged foreign investors from investing in internal funds 3.1.2 Evaluation of the conditions 3.1.2.1 National development strategy In the Plan for developing the stock market period 2010 – 2020, the State Security Commission stated clearly: “Develop the stock market at a faster pace, revolutionize the market structure quality, align the market to the international standards, improve access to the worldwide criteria, adjust with the conditions and socio-economic 45 development target of the country, integrate into the regional and international financial market.” In order to attain this common goal, the administrative system needs to be gradually completed, including the requirement “during the period 2010-2013 the legislation body will pass down the regulations to reinforce and diversify the structure of investors, give instruction for starting open-end funds, ETF, property funds, structured funds which link the banking and insurance products” Thus, conducting a research and devising plan to promote ETF at this time is totally aligned to the development direction of Vietnam stock market 3.1.2.2 Legal framework In Vietnam, the present legislative documents system regarding the establishment, activities, and management of investment funds in Vietnam are listed as followings: Table Present legislative documents of legal system in Vietnam Issuer Name of document Content Time issued National Security Law (Law Specify the requirement regarding the 2006 Committee number prospectus, listing, trading, investment, 70/2006/QH 11) security services, and stock market Amendment to Amendment, adjustment to some 2011 Security Law (Law provisions of Security Law number 62/2010/QH12) Government Resolution Give detailed regulation on some 2007 14/2007/ND-CP provisions of Security Law 46 Resolution Amend, add some provisions for 2010 84/2010/ND-CP Resolution 14/2007/ND-CP Finance Decision Establishment and Activities of Fund 2007 Ministry 35/2007/QD-BTC management firms Decision Amend, add some provisions for 2008 125/2008/QD-BTC Decision 35/2007/QD-BTC Decision Establishment and Management of 2007 45/2007/QD-BTC Security Investment Fund Decree Instruction 183/2011/TT-BTC managing open-end funds of establishing and 2011 Source: Hanoi Stock Exchange and Official Government Website So basically, the legal framework in Vietnam is adequate to support the activities of funds and fund management firms Besides, State Security Commission already held a referendum for the draft of Decree of Instruction on establishing and managing security investment fund, which is planned to be active in the upcoming time Especially, the Decree sets aside a whole chapter for regulating ETF, in which it details the provisions regarding required condition and procedure for issuance, register, trading and activities of AP, fund management firms, investors Other contents for creation and redemption of ETF shares - which are carried out similar to open-end funds - and rules regulating the trading of ETFs - which is done the same as closed-end funds - are also specified in the Decree As a result, the issuance of the Decree of Instruction on establishing and managing Security Investment Fund will create a moderately completed legal framework for the establishment and management of ETF in Vietnam Detailed regulation regarding the technical procedures such as the mechanism for creation/redemption, repurchase agreement, secondary market trading mechanism, initial public offering, and seasoned equity offering will be prescribed in the Regulation issued by State Security Commission 47 The implementation and injection of ETF into trading at Security Exchange is also stated in action plan written by State Security Commission for the purpose of increasing the quality and diversifying the security portfolio in 2012 3.1.2.3 Technical condition requirement a) Regarding the primary market Together with building a primary market for the open-end funds in Vietnam, creating convenient conditions for ETFs to exercise initial public offering and carry out continuous issuance/redemption during the listing period needs to be started as soon as possible One of the attractive characteristics of ETF is that the buying/selling of ETF shares can be completed at any point of time during the trading session, thus building an adequate trading system for assuring the continuous buying/selling of fund management firms plays a vital role in determining the success of the market In case the fund management firms exercise direct connections with AP, the buying/selling process will be slowed down Accordingly, a communication center to connect the issuer institution, AP, and Vietnam Security Deposit is inevitable The State Security Commission can play the role of monitoring the trading activities and building and managing the primary trading system for ETF b) Regarding the secondary market ETF shares will be listed on Security Exchanges, and traded in a similar convention to stocks As a result, the trading system at Security Exchanges and the payment system at Vietnam Security Deposit as well as administrative procedures currently applied to the trading of stocks can be implemented for the secondary market transactions of ETF In case the arbitrage transaction is allowed, Vietnam Security Deposit will need 48 to add the procedures for processing the payments of this type of transaction 3.1.2.4 Preparation of market participants a) Fund management firms The fact that investors underestimate significantly the value of closed-end funds in comparison with the funds’ NAV has caused pressure on the administration and also hindered the capital mobilization of the fund management firms As a result, almost all fund management firms are expressing hope for an opportunity to manage open-end funds in a more flexible fashion, attracting more investors Although ETFs not place management capability high priority as open-end funds (open-end funds are not allowed to be traded on the Security Exchange) but this is a brand-new product that has never appeared on the Vietnam Security Market before, the domestic fund management firms will face difficulties in delivering related services and exercising ETF-relevant professions due to limitations in management experience and education Accordingly, more experienced foreign fund management firms might be the dominant participants in the beginning period of introducing ETF to the market b) Security Institutions Currently, the number of security institutions in the Vietnam market is quite high in relative to the other countries or the total capital (105 enterprises) According to the new regulations of Security Law and the requirement of market, the standards for Security Institutions in terms of chartered capital and qualifications are more and more demanding The qualified security institutions are trying to improve the financial capability and professional quality to survive and thrive in the new market condition The introduction of ETF will serve as a springboard for the institutions to improve themselves to reach the title of AP, playing the vital role in ETF market as well as the common broker function 49 c) Investors The Vietnam stock market has been operating for more than 10 years The knowledge of the securities and security market of Vietnamese investors has improved significantly if comparing with the beginning phase of the fledgling market The investment approach has also grown more professionally However, based on the experience of many other countries in the world, training investors is a critical mission for successful introduction of a brand-new product like ETF to the market Consequently, to introduce ETF product to Vietnam, the State Security Commission needs to cooperate with the Security Institutions, universities, and listed companies to organize training sessions, extensive propaganda, and additional classes to help investors get acquainted with ETF so that they can employ ETF as an effective investment tool 3.2 Applying ETF product in Vietnam 3.2.1 The need for development With the current situation, the investment funds in Vietnam are facing the need for development These funds need to think of a solution to the existing problems such as: The development speed of funds does not catch up with the growth rate of stock market Consequently, the properly organized investment funds have not been able to express their roles in the market, having a huge impact on the stock market activities because of the unprofessional individual investors The investors’ interests in the funds have been reduced significantly Besides, the discount rate between the market price and the funds’ NAV is too high This causes a direct impact on both investors and fund management firms Thus, one of the prioritized targets of fund management firms is to push the trading price tangent to the value of fund shares However, under current mechanism, this job is evaluated to be impossible Some investors have risen to state demand to reshape the closed-end funds into open-end funds 50 so that the fund management firms can buy back funds shares, lowering the discount rate The fund management firms currently are facing many difficulties in developing new products Under the monopoly of closed-end fund model, funds are unable to devise new types of products to differentiate themselves from other competitors With the present investment habits, closed-end funds no longer satisfy the needs of investors To fund management firms, management fee is the main source of income to guarantee the stability of business activities With the current business model, the revenue of fund management firms depend directly on the size of investment portfolio With closed-end funds, the chance to increase the funds’ capital for taking advantage of market opportunity is quite limited As a result, it should be realized that it is time for the fund management firms in Vietnam to have a new step of development, approaching the growth of the markets in the world generally and in the region specifically ETF – the product having both the characteristics of the familiar closed-end funds and the new open-end funds (which is the solution to the limitations of the closed-end funds) and emerging rapidly in the international market – is an ideal approach to solving the present problems in Vietnam fund shares market 3.2.2 Rule-of-thumb for construction and general model 3.2.2.1 Rule-of-thumb for construction Constructing the ETF market should be carried out based on the following principles: + In line with the development strategy of Vietnam stock exchanges + Guarantee the safe and effective operations of ETF trading and available markets + Assure the transparency of ETF products 51 + Benefit the market participants Besides, the construction of ETF Market should also: + Not require for complex adjustments and additions to the legal framework + Satisfy the monitoring and administering principles of the regulating agencies and the operating institutions + Meet up with the operation status of funds share trading in Vietnam + Be consistent with the available technology infrastructure and economic conditions of market participants + Be able to be implemented based on available assets and have the potential to expand to other types of assets in the future 3.2.2.2 General model a) ETF market participants: ETF is basically a type of mutual fund possessing the characteristics of both open-ended funds and closed-ended funds, thus the market participants include the participants in both the open-ended funds market and closed-ended funds market, which are: + State Security Exchange Commission – the administering agency + Stock Exchanges + Vietnam Security Deposit (VSD) + Fund management firm – the issuer + Securities Institution – Authorized Participant, Broker, Liquidity Allocator 52 + Index management institution + Monitoring bank/Security deposit bank + Distributing agency + Investors b) Operating model After being created, ETF shares must be registered on the primary market system and listed on the secondary market trading The monitoring bank, security institutions (including AP) must all be members of the Stock Exchange and VSD Investors who want to engage in ETF shares trading must register at the associated stock exchanges and VSD + On the primary market: The issuer (fund management firms creates the ETF creation unit via the exchange system Under request, AP sell ETF shares back to fund management firms via the trading system The records of creating/redeeming will be transferred to VSD to be carried out respectively + On the secondary market: ETF shares will be traded between AP and other investors via listed stock exchange system The investors can exercise their investment in ETF the same as with listed stocks 3.2.3 Plan of implementation 3.2.3.1 Choosing the base goods After the research, based on the international experience, the first ETF to be introduced into the Vietnam stock market should be Index ETF and apply the full replication method because of: + Simplicity in the trading process 53 + Diversity of the market participants + Simple price determination mechanism, with detailed standards + In-kind exchange can be carried out easily + Simple for the public understanding As an example, the Hochiminh Stock Exchange (HOSE) can introduce an ETF that fully replicates VN30 Index (the Index that is constructed by using a portfolio of 30 most liquid stocks with the largest chartered capital on the HOSE) An advantage of this choice is that VN30 is highly correlated with the whole market, thus can represent the market and perform well, creating efficiency for the market participants After the market is familiar with Stock Index ETF, the Stock Exchange can move on to introduce new ETF such as Bond Index ETF, Currency ETF, Commodity ETF 3.2.3.2 Building the legal framework and technology infrastructure base The State Stock Exchange Commission should conduct a referendum to get the market participants’ opinions to build a detailed Rule Proposal for establishing ETF An extensive review of the existing regulations should be carried out to see which additions and adjustments should be made specifically for ETF, in terms of offering, creation, redemption, and trading of ETF An automatic system for creating/redeeming ETF for ETF market participants needs to be built to facilitate the trading process and attract investors Another system for calculating iNAV to assure investors of the transparency and also to help them monitor their investments effectively is also of priority 3.2.3.3 Training about ETF ETF can only prove to be an effective investment tool when the people are well 54 trained enough to use it From now until the first ETF to be applied in the trading, the Stock Exchanges need to cooperate with Vietnam Security Deposit, State Stock Exchange Commission to hold the training sessions to supply all market participants, especially the intermediate institutions (including fund management firms, security institutions, monitoring banks ) with necessary knowledge by holding free public conferences on a large scale and cooperating with the media and public information channels to broadcast ETF lessons on television so that all individual investors can have easy assess to the information For the market participants such as State Security Exchange Commission, Security Institution, VSD , they should hold meetings, conferences, talks for the experts to share experience and exchange opinions with foreign specialists They can also issue documents relating to ETF trading model and relevant instructions to all the employees and customers 3.2.3.4 Introduction of a privileged Equity Index For international investors, Vietnam stock market is still a frontier market When investing in Vietnam, foreign investors rarely use VNIndex as a benchmark to measure their performance return One reason is that the VNIndex cannot be easily replicated, as it comprises over 300 stocks and many are restricted to foreign investors International investors prefer to use other indexes that are published by international index firms such as MSCI and FTSE MSCI has been publishing the MSCI Vietnam Index, which currently comprises of 14 stocks listed on HOSE FTSE also has a FTSE Vietnam Index, which currently comprises of 33 stocks that are listed on HOSE or HNX To deal with this problem to attract more international investors, track the market more effectively, and the most important is build reputation for the Vietnam Equity Index, the two stock exchanges in Vietnam has begun building the VN30 (for Hochiminh Stock Exchange) and HNX30 (for Hanoi Stock Exchange) However, they should complete the introduction of VN30 (for HOSE) or HNX30 (for HNX) at least months before ETF 55 shares are listed so that there is enough time for the Index to get familiar and build credibility with investors Chapter 4: Conclusion Although ETF is relatively new to the Vietnamese market, its potential benefits have been proved in many international markets, many developed markets as well as many developing markets such as America, Taiwan, Japan, Europe, posing as strong evidence for the investors to believe in a bright future and a wise investment of the product After more than 10 years of development and recent ups and downs, Vietnamese stock market is craving for a new wind, for a new product, for a significant change that can stir up the investors confidence and interest rather than just lay low and wait for the long-term effects of macroeconomic policies At a time when the market is tired of the slow and inactive trading and ineffective management of investment funds, ETF might just be the right answer The research shows that the application of ETF into Vietnamese market is totally in line with the development strategy and the preparation of the market participants, including even the government, is also close to adequate for the introduction of this investment product No doubt there are many changes and much preparation should be carried out, but the payoff is just sweet in many ways All in all, the market is ready, investors are thirsty for a new change, now is just the right time for Vietnam to welcome a beneficial and fresh friend like an ETF 56 Reference - Bloomberg News Stoxpro software Book: ETF – All you need to know about exchange-traded funds, by Richard - A Ferri, CFA Introduction to ETF, by Saigon Securities Institution’s Research and - Investment Advisory Department Details on VN30 Index and HNX30 Index, issued by Hochiminh Stock Exchange and Hanoi Stock Exchange ... to Vietnam stock market 1.2 Research objective The thesis is aimed to look deeply into the Vietnam stock market to assess the conditions and provide the recommendations for applying the ETF products... Status of Vietnam stock market and conditions for applying ETF products 42 3.1 Status of Vietnam stock market 42 3.1.1 Indispensability of ETF product 42 3.1.1.1 Trading state of Vietnamese... gap between ETF value and NAV 41 Chapter 3: Status of Vietnam stock market and conditions for applying ETF products 3.1 Status of Vietnam stock market 3.1.1 Indispensability of ETF product 3.1.1.1