Stock market overhaul targets new inflows

Stock market overhaul targets new inflows

Vietnam is stepping up efforts to unlock both domestic and foreign funding, leveraging tax reforms, infrastructure upgrades, and investor education.

At an event on the driving forces behind new capital inflows, hosted by VIR on July 23, fund managers, business leaders, and state regulators came together to discuss and propose measures to attract foreign capital and unlock domestic investment for a healthier, more efficient stock market.

Nguyen Phan Dung, deputy CEO of SSI Asset Management, stated that there remains significant headroom for both domestic and foreign capital flows into Vietnam’s financial markets. He emphasised the critical role of investor-supporting policies, particularly tax incentives, when it comes to domestic capital.

“In several international markets with robust investment flows, long-term capital is often encouraged through preferential tax regimes. Long-term investors with a strategic outlook who invest via professional fund managers are typically eligible for reduced or even exempted tax rates,” Dung said. “This is a crucial factor, especially as Vietnam is in the process of amending and supplementing its tax legislation.”

With regard to foreign capital inflows, the successful reclassification of Vietnam’s stock market to emerging market status is expected to unlock inflows from passive investment vehicles such as exchange-traded funds (ETFs) and global index funds.

“In the initial phase, inflows from passive funds like ETFs will likely amount to around $1-2 billion. Capital inflows from other types of investment funds could realistically reach $5-10 billion,” he added. “These are active funds that selectively invest in companies based on specific criteria. Therefore, to attract such capital, Vietnamese companies must meet international standards in areas such as English-language disclosures and environmental, social, and governance practices.”

In terms of attracting foreign capital, Trinh Quynh Giao, CEO of PVI Asset Management, added that while the market’s reclassification to emerging status has been frequently cited as a key factor in luring foreign investment, another critical element that deserves greater attention is the upgrade of Vietnam’s sovereign credit rating.

“When the sovereign rating is upgraded to investment grade, it has two major implications,” she explained. “Firstly, the cost of foreign borrowing for Vietnamese enterprises will decrease. Secondly, a higher sovereign rating implies reduced policy risk and greater macroeconomic stability. This not only helps attract more foreign capital, but also encourages longer-term inflows, both in the form of equity investments and corporate debt,” she continued.

As for domestic capital, Giao noted that the issue is not about attracting it but rather unlocking it.

The State Securities Commission (SSC) and market stakeholders have launched various investor education initiatives, but Giao emphasised that more comprehensive and structured financial literacy programmes should be integrated into the national education system, particularly at the secondary school level.

“When financial education becomes ingrained from an early age, the abundant capital held by the public can be unlocked and redirected into professional investment funds. These funds will know how to allocate the capital efficiently into businesses, supporting enterprise development and contributing to the long-term growth of the economy,” said Giao.

This year marks 25 years of the Ho Chi Minh City Stock Exchange (HSX). Tran Anh Dao, executive vice president of the HSX, said that compared to 2-3 years ago, Vietnam’s corporate sector is now regaining momentum and is on a solid recovery path.

“The HSX has successfully deployed the new KRX trading platform for the entire market. This is the technological foundation we will leverage as we prepare for a potential market upgrade, alongside the central counterparty and other new system utilities,” she noted. “With the current infrastructure, the launch time for new products can be significantly shortened. We are working with Vietnam Securities Depository and Clearing Corporation to map out a roadmap for upcoming products. For now, we are focused on stabilising the system to promptly meet increasing trading volumes.”

Dao revealed that the SSC is pushing forward reforms to streamline initial public offering (IPO) and listing procedures. Under a new decree, the listing process will be directly tied to IPOs, aiming to create stronger post-IPO liquidity.

“In the fund management segment, we are proactively collaborating with asset managers to develop new indices tailored to different investor groups,” she added. “The HSX will soon launch more indices to support the design and rollout of investment products by asset managers. Our goal is to fully leverage the new infrastructure to diversify products and meet market demand. Stability and sustainability remain our top priorities.”

Bui Hoang Hai, vice chairman of the SSC, said Vietnam has met the hard criteria for a market upgrade, while soft criteria still hinge on the actual investment experience of foreign investors under the current legal framework. “We want to reiterate that the market upgrade is not the ultimate goal,” Hai said. “The ultimate goal is to elevate Vietnam’s capital market, to make it more transparent, stable, and efficient, so that investors can find real opportunities for sustainable returns.”

A draft scheme on the development of institutional investors is being prepared and proposed by the SSC. Hai noted that the draft is nearing completion and will likely be submitted to the Ministry of Finance imminently.

Stock market overhaul targets new inflows, Photo: Chi Cuong

Nguyen Duc Chi, deputy Minister of Finance

For 25 years, Vietnam’s stock market has built a solid legal framework and market members with strong financial capacity, professional expertise, and proper qualifications. The market has come a long way – from just a few hundred investors in the early year to over 10 million accounts held by both domestic and foreign investors today. Stock market capitalisation now stands at 60-70 per cent of GDP – a scale we can truly be proud of.

The market’s technical infrastructure has been steadily evolving of late. Two months ago, the new KRX system went live to support overcoming overload and meet increasing transaction needs. In parallel, updated payment and securities transfer systems have been implemented, laying the groundwork for the upcoming launch of a central counterparty clearing system to further enhance operations.

The stock market should serve as a medium- and long-term channel for capital mobilisation, as well as a barometer of the economy’s health and business performance. After 25 years of development, the market has made meaningful progress on many fronts. Now is the time to consider how we can take it to the next level.

In the current context, the financial and stock markets must develop by attracting medium- and long-term capital to meet investment demand and support the country’s large-scale infrastructure projects.

Relevant agencies need to carefully review the Law on Securities, the draft amendments, and guiding decrees, clearly identifying legal bottlenecks that need to be amended. Solutions to improve the quality and scale of goods are also needed, including considering allowing foreign-invested enterprises to list.

Additionally, it is necessary to clarify the strategy to increase the proportion of institutional investors, as well as training and improving knowledge for individual investors for balance and stability.

Nguyen Son, chairman Vietnam Securities Depository and Clearing Corporation

To attract more foreign investors, the management agency and market operators are determined to complete and prepare for upgrading the stock market from frontier to emerging.

A number of organisations said that Vietnam can be upgraded to emerging market.

To implement the market upgrade, the Ministry of Finance, the State Securities Commission, and market members, under the direction of the government, have done all the work in all aspects. Some bottlenecks have been removed, especially online granting transaction codes for foreign investors, and the issuance of indirect accounts to become as open as securities trading accounts.

We will coordinate with the KRX developer for further investment, upgrading infrastructure and equipment related to the depository registration and payment clearing system to improve processing capacity, meeting the development requirements of the market.

Establishment of a subsidiary as a central clearing partner will also follow the Law on Securities. This will also serve as an important development step to provide payment services to the market according to international standards, meeting the requirements of upgrading the securities market.

Dang Nguyet Minh, head of Research Dragon Capital Group

For the infrastructural development of the country, the Vietnamese financial market needs to improve its scale and position on the global financial and investment map. Upgrading the Vietnamese stock market from frontier to emerging is a prerequisite.

We believe that the Vietnamese stock market will be upgraded to emerging this September by FTSE Russell. This market can even achieve the upgrading target according to MSCI standards within the next 18-24 months.

The stock market is the most attractive asset channel, with the highest investment efficiency, which can be up to 5-10 times, even up to 12 times. As the stock markets grow enough, the price to earning ratio (P/E) are very high, from 25 to 50, supported by the potential for profit growth of 20-30 per cent.

Vietnam’s ambitions on private economic development is a clear step in decentralising and empowering the economy so that private enterprises can develop, being a foundation for double-digit GDP growth. These enterprises will need stable long-term capital, and the stock market is the most effective tool to unlock this capital.

Therefore, it is necessary to diversify the investor structure, focusing on large global institutional investors. Solutions are also needed for individual investors to shift from short-term to longer-term investments. In addition, the quality of listed companies needs to be improved to become transparent.

Vietnam has a strong growth foundation and determination. With an effective stock market development strategy, we will certainly attract world-class investors.

VIR