The Growth of Vietnamese Capital Market And Need For SSC Surveillance
The Vietnamese capital market has come a long way since the trade of its first stock at the Ho Chi Min (HCM) Stock Trading Centre on 28th July 2000. Although capital market trade in Vietnam started in 2000 and was low until 2008-09, it rose post the global financial crisis of 2008-09, when Vietnam decided to participate in the World Trade Organisation.
In the meanwhile, Vietnam too worked towards upgradation of market infrastructure and bringing in policy reforms which included passing of the Securities Law in 2006 (further revised in 2010 and 2019), upgrading of the two stock trading centres in HCM City (2007) and Hanoi (2009) to exchanges, reforms in bond market (2009), setting up the Unlisted Public Companies Market (2009), establishment of the financial derivative market (2017), passing Decision 242 for restructuring of securities and insurance market to establish the legal and institutional framework of stock exchanges (2019) among others.
Today, capital market dealings account for 32% of the entire financial market in Vietnam. The competitive growth of the Vietnamese capital market is evident from the fact that the total trade of the market has gone up from USD 93.06 billion in July 2016 to USD 402.73 billion dollars in March 2022, while the market capitalisation to GDP ratio rose from 52.95% to 146.33% during the same time making Vietnam one of the fastest growing capital markets among the Southeast Asian economies.
Despite its spectacular growth, the Vietnamese capital market has lately seen several cases of market irregularities and frauds. One of the first cases to have come in public glare was that in May 2019, when the Hanoi People’s Court awarded a life sentence to Tran Huu Tiep, the former Chairman of the Board of Directors of the Central Mining and Mineral Export JSC (MTM) for manipulation of securities prices and fraudulent appropriation of assets.
Few more such instances were noted in between 2020 and 2022, however two separate cases of market irregularities have drawn most public attention in recent times. These are the arrest of Trinh Van Quyet, Chairman of the property developer FLC in March 2022 on charges of stock market manipulation and information concealment and the arrest of Do Anh Dung, Chairman of the property developer Tan Hoang Minh group in April 2022 on suspicion of fraudulent appropriation of assets.
The sudden rise of such market irregularities has alerted the State Securities Commission (SSC), to initiate immediate action for checking market irregularities. On the other hand, global financial experts feel that such instances are common in emerging markets.
While such instances may cause knee jerk reactions among investors, they also help policymakers in developing suitable policies. Zafer Mustafaoglu from the World Bank has urged the Vietnamese policymakers not to overreact to such odd instances but rather focus on market reforms and increasing product diversity. Similarly, Andrew Jeffries of Asian Development Bank has stressed on the importance of developing market infrastructures like credit rating while promising support to deepen the corporate bond market in Vietnam.
Further, the Finance Minister of Vietnam Ho Duc Phoc, in a conference, has informed that his ministry is working towards development of better-quality products and pushing for disinvestment of public sector enterprises for subsequent listing on exchanges. The Ministry of Finance of Vietnam is working towards upgrading the capital market from “frontier status” to “emerging status” that is expected to drive up foreign participation in the local exchange.
While such initiatives are welcome, there is however a need to undertake some infrastructure and policy changes for the market to grow. First, SSC needs to enhance market surveillance and market supervision by undertaking periodic reporting by stock exchanges, surprise checks etc. and ensure strict penalties for defaulters.
Policymakers should consider bringing market players such as exchanges, brokers, intermediaries under one roof to develop and adopt global best practices. This can be best achieved by creating a self-regulatory organization (SRO) which will complement the functioning of SSC. Second, Vietnam needs to develop programmes to create investor awareness and improve financial literacy among the general public.
Such programmes will ensure reduction of frauds and market manipulations, control disinformation, and encourage investors to actively participate in the capital market. Third, with reclassification of the Vietnamese capital market as an “emerging market”, it will see a sudden rise in foreign investments leading to demands for better infrastructures including credit rating agencies, depositories, clearing corporations, secured and safe IT infrastructure, reliable logistical support among others. Vietnam needs to be prepared lest it fails to support this sudden rise in activities.
These apart, suitable tax reforms will also attract retail and institutional investors to participate in the Vietnamese financial market. Fourth, product innovation is an ongoing process for a dynamic financial market.
To ensure this, Vietnam must be ready to cater to the needs of new age global investors which is only possible through constant product innovation. By introducing differentiated financial products such as commodity and currency derivatives, forward and future derivatives, alternative investment funds, Vietnam can cater to the different investors with varied investment appetite.
Vietnam is fast emerging as a dynamic player in the global financial arena and stands the chance to be a favourable investment destination for investors across the globe, including India. All it needs is to showcase the opportunities it holds!
(Arindam Goswami is a policy researcher with Pahle India Foundation. He works on financial sector and sustainable financing.)