Strengthening fund industry as a major capital channel

Strengthening fund industry as a major capital channel

Despite the modest scale of the fund industry, it stands before substantial opportunities as the stock market approaches its upgrade goal, enhancing its attractiveness to both domestic and foreign capital.

Investors tracking stock movements on digital boards at a securities firm. Photo bnews.vn

The stock market is witnessing significant growth, with hopes of being upgraded to emerging market status in September.

This transition presents a pivotal opportunity for the fund management sector to solidify its role as a crucial pillar in capital markets.

As of the end of December 2024, retail investors in Việt Nam had amassed over 9.2 million accounts, representing approximately 9 per cent of the population. 

According to the Vietnam Securities Depository and Clearing Corporation (VSDC), the average transaction value for this group increased by 22.7 per cent, reaching VNĐ18.7 trillion (US$713.2 million) per session. 

Meanwhile, institutional investors, including professional funds, accounted for only about 11 per cent of total market transactions.

The participation rate of retail investors in professional investment products, such as open-end funds, remains low. 

By the end of 2024, the country had 43 active fund management companies, managing a total of approximately $25.6 billion in assets, which constitutes a mere 5.9 per cent of the country’s GDP. This figure pales in comparison to other Asian countries, such as China (19.1 per cent), Thailand (20.4 per cent), Malaysia (51.5 per cent), and South Korea (33.2 per cent). 

Furthermore, only about 423,000 retail investors hold open-end fund certificates, significantly lower than the over 9 million active securities accounts.

Despite the modest scale of the fund industry, it stands before substantial opportunities as the stock market approaches its upgrade goal, enhancing its attractiveness to both domestic and foreign capital. 

The economy is also entering a phase of accelerated development, marked by an increasing demand for capital to support infrastructure and business production.

Nguyễn Thị Hằng Nga, General Director of Vietcombank Fund Management Company Limited (VCBF), said that for the fund industry to realise its potential, comprehensive and breakthrough solutions would be essential. Investment funds must be recognised as a significant capital channel for the economy. 

She added that mobilising retail investor funds through professionally managed investment funds would not only improve investor returns but also alleviate the burden on the banking system, particularly as the credit-to-GDP ratio had already reached about 134 per cent.

Strategic solutions

Nga outlined a need for a synchronised action plan, emphasising close cooperation from regulatory bodies on long-term strategies, widespread distribution infrastructure, professional human resources and a rich supply of investment products.

One key strategy involves enhancing the distribution infrastructure, according to VCBF. It suggests allowing banks to offer asset management services and officially distribute fund certificates. 

When people invest in funds, banks can reduce the burden of deposits and loans to the economy. 

Currently, Vietnamese banks are not permitted to provide asset management or investment advisory services, while some international banks derive more than 40 per cent of their total service fees from asset management.

Additionally, increasing the quantity and quality of available investment products is critical. Currently, the domestic stock market faces a severe shortage of quality goods, including both listed stocks and corporate bonds. 

The limited supply of quality stocks is exacerbated by the slow pace of state-owned enterprise equitisation and the lack of new listings from large private corporations. 

With banking stocks comprising over 35 per cent of the VN-Index, the investment portfolios of funds lack diversification and include few sustainable growth companies across fundamental sectors.

To address these issues, it is crucial to accelerate the IPO process and equitisation of state-owned enterprises while enhancing governance capabilities post-equitisation. 

The government could consider tax incentives for newly listed companies to stimulate a new wave of IPOs.

The lengthy procedures for public bond issuance and listing often deter companies from pursuing these options. Solutions to eliminate these bottlenecks are necessary to create a supply for bond funds. 

Given that open-end funds can only invest a maximum of 10 per cent of their assets in privately placed corporate bonds, the absence of listed corporate bonds limits the growth potential of bond funds.

Strengthening investor confidence is also vital, from transparency to actual effectiveness. 

Despite only about 9 per cent of the population holding securities accounts, around 85-90 per cent of transactions in the Vietnamese stock market come from retail investors, many of whom engage in speculative and short-term trading. Long-term investment confidence through professional organisations such as open-end funds remains fragile.

To change this, the fund management industry must leverage the expertise of investment professionals, not only in asset management but also in enhancing financial literacy within the community, Nga said.

In agreement, VinaCapital said that alongside enhancing investor awareness, a comprehensive set of measures would be necessary to develop the Vietnamese open-end fund industry, including improving distribution channels and diversifying investment products.

VinaCapital proposed amending the Credit Institutions Law to permit commercial banks to distribute financial products, including open-end funds. 

The State Securities Commission of Vietnam (SSC) should develop certification processes so that bank staff can distribute investment products after obtaining professional certifications. 

These measures would enhance investment fund coverage through the extensive networks of bank branches while also standardising and professionalising investment advisory teams to protect individual investors and boost market confidence. 

Bizhub