Large room for the Vietnamese capital market
From the perspective of institutional investment funds, Vietnam's capital market is facing a stage of development with many rare favorable factors. In the past decade, Vietnam's economy has maintained an average GDP growth rate of about 6–7% per year, becoming one of the economies with stable growth in the region.
In a presentation at the Workshop "Effectively mobilizing capital sources, serving the goal of double-digit growth" organized by the Ministry of Finance and the State Bank of Vietnam in coordination with Lao Dong Newspaper, Mr. Tran Hieu - Head of Business Development Department, Mirae Asset Investment Fund (Vietnam) said that the rapid expansion of the middle class and the golden population structure with more than 60% of the population being of working age has created important foundations for the development of the financial market and the capital market.
These three factors – stable economic growth, the rise of the middle class and favorable population structure – are often seen as the basic conditions of emerging markets that are attractive to institutional investors. In the context of Vietnam setting a double-digit GDP growth target in the coming years, the role of the capital market is becoming even more important in providing resources for economic development," Mr. Tran Hieu assessed.
According to Mr. Tran Hieu, in terms of scale, Vietnam's capital market still has a lot of room to expand. Currently, Vietnam's stock market capitalization reaches about 85% of GDP. Compared to more developed markets in the region such as Thailand or Malaysia - where market capitalization has exceeded 100% of GDP - Vietnam's market size still has a significant gap. This shows that the growth potential of the capital market is still large as the economy continues to expand and more and more businesses participate in listing on the market.
Another factor showing the development potential of the market is the scale of the domestic investor base. The proportion of the population participating in securities investment in Vietnam is currently only at about 8–10%.
Besides the internal factors of the economy, the market upgrade process is also considered an important factor that can create a new shift for the Vietnamese capital market. FTSE's upgrade of Vietnam from a frontier market to an emerging market is expected to create a structural boost for international investment capital flows. When the upgrade process is implemented, the market may attract more foreign capital, including passive index investment funds and active investment funds. In the long term, the next goal is to be considered for MSCI's upgrade, thereby further expanding the ability to attract large capital flows from global investors.
In addition, some recent reforms in the Vietnamese stock market are also creating a foundation for development in the next stage. The deployment of the KRX trading system, improvements to increase market access for foreign investors as well as changes in the public offering (IPO) process are expected to contribute to improving market infrastructure and improving the efficiency of capital mobilization activities.
Need to unlock capital channels for businesses
Although the need to mobilize resources for economic development is increasing, in reality, the mobilization and allocation of capital in the economy is still facing many different bottlenecks. According to the assessment of Dr. Nguyen Minh Phong - Former Head of Economic Research Department, Hanoi Institute for Socio-Economic Development Research, these bottlenecks not only come from businesses but also relate to the structure of the financial market, access to capital as well as the operation of capital channels in the economy.
First of all, one of the major limitations today is that the financial internal strength of the business sector is still relatively weak. Most businesses in the economy are small in scale, have limited financial capacity and mainly operate in the form of small-capital enterprises.
In addition, Vietnam's capital market, especially the stock market and corporate bond market, has not yet developed commensurate with the needs of the economy. Although the market has made progress in recent times, the market's reliability as well as the diversity of investment products are still limited.
Another bottleneck lies in the ability of businesses to access bank credit capital, especially for the small and medium-sized enterprise sector. The rest faces difficulties due to lack of collateral or not fully meeting the requirements for transparency in financial management and cash flow.
In addition, the allocation of capital flows in the economy is also being affected by the trend of speculative investment in some sectors. In the past time, investment activities in real estate or financial activities of short-term nature have attracted a significant amount of social capital.
According to Dr. Nguyen Minh Phong, to ensure resources for the goal of high growth in the coming period, an important requirement is to build a reasonable capital structure, including effective coordination between sectors of the economy. The organization and allocation of resources need to be placed in the overall economic development orientations identified in major resolutions of the Central Government, especially orientations related to the development of the state economy and the private economy.
