Digging Deeper: Vietnam's Stock Market Reforms and Frontier Market Status Update (July 2022)
Vietnam’s frontier market status update; foreign ownership rules; Vietnam stock market reorganization plans, problems, reforms & manipulation rules; and general some Vietnam market commentary.
This is a companion article to: VanEck Vietnam ETF (VNM): Flawed But Still an Easy Way to Cash in on Vietnam’s Frontier to Emerging Market Upgrade. I also have a Vietnam ETF page with some useful links here and a list of Vietnam article links tagged on my site here.
Below, under the following headings, are good links to and quick summaries or key points from recent articles about the Vietnam stock market and ongoing reforms to upgrade from frontier to emerging market status:
Vietnam’s Frontier Market Status Update
Vietnam Foreign Ownership Rules
Vietnam’s Stock Market Reorganization Plans
Vietnam’s Stock Market Problems and Ongoing Reforms
Vietnam Stock Market Manipulation Rules and Violations
Some General Vietnam Stock Market Commentary or Observations
Adding any additional comments, observations or links would be appreciated in the comments section.
Vietnam’s Frontier Market Status Update
The MSCI Global Market Accessibility Review (June 2022) - PDF File (Website)
Vietnam Foreign Ownership Limit Level: Companies in certain conditional and sensitive sectors are subject to foreign ownership limits ranging from zero to 51 percent. These limitations still affect more than ten percent of the Vietnamese equity market.
Foreign Room Level: The equity market is significantly impacted by foreign room issues. More than one percent of the MSCI Vietnam IMI is impacted by low foreign room.
Equal Rights to Foreign Investors: Some company related information is not always readily available in English. In addition, the rights of foreign investors are limited as a result of the stringent foreign ownership limits imposed on both total as well as individual foreign investors.
Foreign Exchange Market Liberalization Level: There is no offshore currency market and there are constraints on the onshore currency market (e.g., foreign exchange transactions must be linked to security transactions).
Investor Registration & Account Set Up: Registration is mandatory and account setup requires the approval of the VSD.
Market Regulations: Not all regulations can be found in English.
Information Flow: Stock market information is not always disclosed in English and occasionally is not detailed enough.
Clearing and Settlement: There are no overdraft facilities and pre-funding of trades is required.
Transferability: Certain off-exchange transactions and in-kind transfers require prior approval from the State Securities Commission of Vietnam.
Vietnam Foreign Ownership Rules
08 September 2021 - Foreign ownership limits in Vietnam (Freshfields)
Most publicly traded Vietnamese companies are still subject to a foreign ownership limitation of 49 percent. In light of new laws that came into effect early 2021, there is a clear path for public companies to take certain steps to increase the foreign ownership to 50% or above or remove foreign ownership restrictions with the consent of the State Securities Commission (SSC).
Vietnamese companies tend to register as many business lines as they can. Some of these business lines (including those are not necessary for the business) may be subject to a foreign ownership limitation. If a foreign investor wishes to acquire a business that registers to do various business lines, the acquisition will only be possible if it is of less than the lowest foreign ownership limit applicable to any of its business lines. The foreign ownership limit is not only applicable to the target company in which the foreign investor directly holds interests but it might only be applied to subsidiaries of the target company if the foreign investor holds a majority of the target company.
Vietnam’s Stock Market Reorganization Plans
July 22, 2021 - Vietnam unveils roadmap to reorganise stock market (The Phnom Penh Post)
Under the circular, by the end of June 30, 2025, the Ho Chi Minh Stock Exchange (HoSE) shall unify the organisation of a trading market for listed shares, fund certificates and warrants.
From July 1, 2023 until December 31, 2023, HoSE will receive shares of listed companies from the Hanoi Stock Exchange (HNX). Meanwhile, from January 1, 2025 to the end of June 30, 2025, HoSE will receive shares of enterprises from the Unlisted Public Company Market (UPCoM).
October 26, 2021 - UPCoM attracts investors thanks to stock potential (Vietnam Investment Review)
The top five stocks bought most by foreign investors in September were Đèo Cả Traffic Infrastructure Investment JSC (HHV), Quang Ngai Sugar Joint Stock Company (QNS), Vietnam Engine and Agricultural Machinery Corporation (VEA), Airports Corporation Of VietNam (ACV), and Thinh Vuong Electric Construction Investment and Trading Joint Stock Company (TV6), with an equivalent trading volume reaching 5.4 million units, 5.2 million units, 3.9 million units, 2.2 million units and 1.5 million units, respectively.
Compared to the two listed exchanges of HoSE and HNX, UPCoM has larger trading price band, attracting investors. However, stocks on UPCoM are not allowed to trade on margin, daily liquidity is low, the number of frequently traded stocks is only about 20 percent.
However, many businesses are considered to have a stable business foundation and growth prospects.
Vietnam’s Stock Market Problems and Ongoing Reforms
January 6, 2021 - REFILE-Vietnam stock market overloaded by surge of new investors, index jumps (Reuters)
“The exchange has intentionally halted trading from 1400 (2 pm) since late-December last year for fear that the system would crash due to a sudden surge of orders,” a source with direct knowledge of the matter told Reuters.
“The system has backup capacity, however, if it crashes, two trading sessions is the least amount of time needed to fix the problem, not to mention it would harm Vietnam’s opportunity to be upgraded in FTSE’s September assessment,” the source said.
February 12, 2022 - Vn-Index set to reach 1,850 in 2022: Experts (Hanoitimes)
“The new technology will be capable of facilitating significant increases in trading volume and resolve system congestion… [at the same time] it will also provide the infrastructure to launch new products such as intraday trading, sale of receivable shares, and non-voting depository receipts (NVDRs), etc. which will attract new and increased foreign investment,” said Estaugh [James Estaugh, head of Securities Services at HSBC Vietnam]
Another important and long-awaited development will be the removal of the mandatory cash prefunding requirement for buy trades via the launch of the new settlement and clearing system under the Central Counterparty Party (CCP) model. The CCP model is planned to be launched alongside the new KRX systems and means investors will no longer have to prefund their purchases.
“It’s about time for foreign investors to position themselves now and be ready for the time when Vietnam is upgraded to Emerging Market status – a foreseeable prospect in the next few years,” he added.
June 29, 2022 - Rising stock account numbers despite plunging trade causes worry (VnExpress)
"I opened the other three accounts because registration is easy and more brokerages mean I get to receive more regular investment advice," the 30-year-old office worker explained.
Le Ngoc Nam, director of analysis and consultancy at Tan Viet Securities, said since many brokerages are now partnering with banks, a new bank customer usually gets a new stock account too.
It takes just minutes to open an account, and investors can sign digitally on smartphone apps to have their contracts approved.
"Many accounts are not even activated, and there is no money in them to trade," Nam said.
Nguyen The Minh, director of analysis at Yuanta Securities Vietnam, said "ghost accounts" make up around 80 percent at his company.
Minh said: "The new account figures do not reflect actual investment. This creates a distorted picture of the market."
It also makes it more difficult for authorities to manage the market, he added.
Park said there is a shortage of stock brokers with an estimated 5,000 taking care of 5.6 million accounts, meaning one broker for every 1,000-odd clients.
July 7, 2022 - Vietnam eyes stock market’s upgrade to emerging status before 2025 (VietNamNet)
In a detailed report published by the MoF, the ministry stressed the market’s upgrade prospects do not depend on the view of the authorities, but on financial services providers such as FTSE Russell or MSCI along with their respective evaluation procedures.
In the latest move, the stock market is set to allow shares to be transferred to investors’ accounts within the trading hours of T+2, instead of T+3.
July 9, 2022 - Upgrade of Vietnam's stock market driving force for future (VietNamNet)
On June 9, 2022, Morgan Stanley Capital International (MSCI) announced the results of the 2022 Global Market Accessibility Review [PDF DOCUMENT], including a detailed report covering market accessibility assessments for 84 markets. Vietnam is not included in the consideration list to be upgraded from frontier to emerging status.
Notably, in its June 2022 report, out of 9 criteria that Vietnam's stock market did not meet, MSCI emphasized the criteria on foreign ownership limitation (foreign room) and said that this bottleneck is affecting about 15 percent of stocks on the Vietnamese stock market.
It is expected that in August 2022, the time for settlement and clearing of securities will be shortened, investors can do T+2 transactions one day shorter than currently, liquidity is hence hoped to improve.
Currently, the capital size of funds that can be allocated to frontier markets is about US$95 billion. To emerging markets, it is about $ 6.8 trillion.
July 14, 2022 - Vietnam aims to upgrade its securities market (VOVWORLD)
The 2019 Securities Law, the 2020 Investment Law, the 2020 Enterprise Law and many other legal documents ensure the ownership proportion of foreign investors, create favorable conditions for investment capital flow, information access, registration and account opening for investors and compensation and payment on the stock market, and provide new financial tools to diversify investment products.
The upgrade could bring in another 10 billion USD of new indirect investment for Vietnam, an additional 2-5 billion USD in the first year.
Vietnam Stock Market Manipulation Rules and Violations
January 5, 2021 - Maximum $130,000 fine for administrative violation in securities market (Hanoitimes)
The Vietnamese Government has recently released Decree No.156/2020/ND-CP detailing penalties for administrative violations in securities market, with the maximum fine going up to VND3 billion (US$130,000) for organizations and VND1.5 billion ($65,000) for individuals.
For the act of abusing internal information to buy, sell stocks or manipulate the stock market, the fine is 10 times the illegal gained amount for organizations and five times such amount for individuals.
January 17, 2022 - Current fines for market violations not enough (Viet Nam News)
State Securities Commission (SSC) last year issued more than 300 decisions to sanction administrative violations in the field of securities and the stock market, an increase of more than 80 cases compared to 2020. The amount of money collected from the fines rose 5.6 per cent to reach approximately VNĐ21 billion; in 2020 they totalled VNĐ19.8 billion (US$871,300).
The most common violations are transactions not being reported within the specified timeframe, non-disclosure of information about expected transactions or non-disclosure of information that must be disclosed in accordance with the law.
April 21, 2022 - Brokerage boss detained as Vietnam stock slump deepens (Edge Markets)
Vietnam is stepping up scrutiny of its financial markets as it seeks to burnish its credentials as a destination for international investment.
“There is a new broom in the house sweeping things out for spring cleaning,” said Fred Burke, senior advisor at the law firm Baker McKenzie. “It’s a huge cultural change in Vietnam.”
“The effort of the government to tackle stock manipulation and corporate bond issuance could further negatively impact on sentiment and cashflow in the short-term,” said Phung Trung Kien, founder of Vietnam Holdings Inc, an investment consultation and asset management company. “But in the long run, it is good for the market.”
May 20, 2022 - Vietnam fires top stock market regulator over "wrongdoing" (CNA)
Vietnam has fired the chairman of its State Securities Commission, the Ministry of Finance said on Friday, as the country intensifies a crackdown on graft.
Tran Van Dung, 57, was sacked for "having committed serious violations and wrongdoings", the ministry said in a statement, without elaborating.
A series of high-profile corporate arrests on accusations of market manipulation has triggered a $40 billion wipeout for Vietnamese stocks and rattled investor confidence in the fast-growing economy.
Earlier this week, the director general of the Hochiminh Stock Exchange was expelled from the Communist Party of Vietnam and authorities issued warnings to several other stock market officials for "violations."
Some General Vietnam Stock Market Commentary or Observations
January 24, 2020 - Vietnam’s Economy Is Booming. Just Don’t Expect to Find Its Stocks In Your Emerging Markets Fund. (Barron’s) $ (Non-Paywalled)
“The listed price is not the transaction price,” says Matthew Vogel, chief strategist at emerging markets manager FIM Partners. “You have to book a 15% to 20% profit to be in the money.”
That has led to limited liquidity—a maximum of 20 companies are tradable, says Jinjoo Hong, head of Asia equities sales at broker Auerbach Grayson—and to dizzying valuations for a few relative large-caps, like Vingroup (ticker: VIC.Vietnam) and Vietnam Dairy Products (VNM.Vietnam).
Top stock picks are geared to consumer spending, like electronics retailer Mobile World Investment (MWG.Vietnam) and bling chain Phu Nhuan Jewelry (PNJ.Vietnam). T. Rowe also likes software developer FPT (FPT.Vietnam) as a play on Vietnam’s burgeoning brainpower.
Auerbach Grayson’s Hong is another fan of both Mobile World and FPT. She adds steel maker Hoa Phat Group (HPG.Vietnam) as a way to cash in on rampant construction.
July 20, 2020 - Vietnam Is Booming Economically. Not Its Stock Market. (Barron’s) $ (Non-Paywalled)
Governance-wise, Vietnam is a mess. Foreign stock ownership is capped. Arcane trading bottlenecks choke liquidity and elevate prices well above what’s listed on the exchange. These and other problems have kept the country in frontier market status, with inclusion in the MSCI emerging market indexes years away, at best.
Oliver Bell, who manages T. Rowe Price ’s frontier equity strategy, is also a fan. “There’s a disconnect here that enables us to buy fundamentally strong companies at P/Es less than 10,” he says. “We’ve been a strong overweight.”
Finding such bargains, however, involves digging beyond the biggest-cap names, such as Vingroup (VIC.Vietnam) or Vietnam Dairy Products (VNM.Vietnam), which have been discovered and bid up by foreign capitalists. Frontier market specialists are focused on budding retail chains like Mobile World Investment (MWG.Vietnam) or Phu Nhuan Jewelry (PNJ.Vietnam).
“We particularly like the retail space, which today is dominated by mom and pops and wet markets,” says James Bannan, who manages the Coeli Frontier Markets fund.
June 6, 2021 - Vietnam stock market posts world’s highest gains (VnExpress)
Abundant cash flow, constantly increasing number of new investors and immediate measures to reduce congestion has propelled the stock market.
November 25, 2021 - Vietnam stocks hit new milestone in record run (Reuters)
The rush to the stock market was driven partly by investors looking to park their cash as other investment opportunities have been stifled by the crippling economic impacts of COVID-19, said some analysts.
"Due to the impacts of the COVID-19 pandemic, the economy's capability to absorb investment funds has declined significantly, and therefore investors have chosen to put their money in the stock markets," an analyst with PetroVietnam Securities Inc. said.
"Investors will wait until at least the pandemic to be under control to withdraw funds from the stock markets for their other investment options."
January 17, 2022 - Vietnamese banks urged to tighten lending in real estate, securities (Hanoitimes)
The State Bank of Vietnam (SBV) urged local banks to refrain from providing credits for businesses operating in risky real estate, securities, corporate bonds, or build-operate-transfer (BOT)/ build-transfer (BT) transport projects.
“Credit, instead, should be channeled with preferential rates into Government’s priority fields [agriculture, industry, small and medium enterprises], consumer finance, and production for socio-economic development.”
In addition, the SBV asked banks to tighten lending in foreign currency to avoid the dollarization of the economy, as well as create favorable conditions for businesses and people to access bank loans.
May 27, 2022 - Vietnam’s long-term credit rating upgraded to “BB+”: S&P (Hanoitimes)
The rating upgrade is supported by Vietnam's robust economic prospects and sound external position. Vietnam continued to attract strong foreign direct investment (FDI) flows, despite pandemic disruptions.
These strengths are balanced against Vietnam's modest GDP per capita, legacy banking sector weaknesses, and evolving institutional settings, exemplified by the centralized decision-making process and rigid bureaucracies around public investments.
Risks to economic growth are tilted toward the downside because Vietnam's export-led economy relies on strong external demand. Rising inflation and financing conditions, as well as geopolitical risks, could dampen global growth and reduce demand for Vietnamese exports. Additional risks to Vietnam's economy include the condition of its financial sector, which is characterized by low levels of capitalization and mixed asset quality, which has deteriorated during the pandemic.
June 26, 2022 - Good Morning, Vietnam (Mathews Asia)
Fertile ground for active managers - Vietnam provides an attractive environment for active managers to find quality growth companies. In general, company disclosure across frontier markets is limited, and analyst coverage is much lower than in developed or emerging markets. This provides opportunities for well-resourced active managers focused on fundamental research to add value.
July 4, 2022 - Vietnam among world's worst performing stock markets in first half (VietNamNet)
More than half of the market capitalisation "evaporation" in the first six months came from the VN30 group, which tracks 30 biggest stocks on HoSE, including big names in banking, real estate and manufacturing sectors such as Vinhomes (-$3.76 billion), Vingroup ($-3.55 billion), Hoa Phat Group (-$3.39 billion), Vietnam Rubber Group (-$2.5 billion) and Techcombank (-$2.21 billion).
In addition, most of the stocks that joined the billion-dollar market-cap club last year had left the group this year, for example Thu Duc Housing Development Corporation, Development Investment Construction, VNDirect Securities Corporation, and Gelex Group.
By the end of June, there were 52 stocks with market capitalisation over $1 billion, of which HoSE alone has 43 representatives.
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