The Vietnamese stock market’s expansion over the past decade has been substantial and quantified, with the benchmark VN-Index up 12.9% in 2024 alone.

Along with this, the government of Vietnam is aiming to improve the capacity of the State Securities Commission ( SSC ), its officials and the stock exchanges to enforce securities market regulations and ensure market operations align with standards and are efficient.

Notably, HSBC has recently highlighted efforts by the government to address the various challenges and risks surrounding the capital markets in the country.

And with the prospect of the nation achieving emerging market status from the London-based index provider FTSE Russell, up from its current frontier market status, Gary Harron, HSBC Vietnam’s head of securities services, says the market is approaching a pivotal milestone.

The index provider, a subsidiary of the London Stock Exchange Group, has announced that its classification assessments for national markets will be announced after the US market closes on April 8 ( or early April 9 Vietnam time ). 

Such an upgrade, Harron points out, could attract substantial foreign capital inflows, improve market confidence and further integrate Vietnam in the financial ecosystem.

Growing market

Over the past decade, the benchmark VN-Index has increased by 2.3 times, market capitalization surged 6.4 fold and liquidity expanded 3.8 times. The number of trading accounts soared by 6.7 times, while the securities trading codes ( STCs ) issued to foreign investors grew by a multiple of 2.8.

Vietnam, HSBC notes, was the best stock market performer in Southeast Asia in 2024. Last year, together with a 12.9% increase in the VN-Index, the market capitalization of the stock exchanges in the nation increased by 21.2%, reaching approximately 70% of GDP. Trading accounts surpassed nine million, covering 9% of the population. Almost 50,000 STCs were granted to foreign investors, with 12.4% held by foreign institutional investors.

Liquidity, last year, remained strong, with an average daily trading value of 21.1 trillion Vietnamese dong ( US$844 million ), a 19.9% increase from 2023.

The qualitative factors on assessing a market are harder to measure, resulting in the index providers like FTSE Russell using a range of criteria developed in conjunction with the international investor community. The process has been transparent and well-communicated, Harron shares, with Vietnam having been on the index’s watchlist since 2018.

“While recent reforms primarily focus on attracting foreign institutional investors, they ultimately benefit the entire capital market, especially domestic retail investors who account for nearly 90% of trading activity,” he adds. “A robust regulatory framework and increased transparency can reduce risks and foster trust among all investors”.

The potential FTSE Russell upgrade could significantly enhance Vietnam’s ability to mobilize capital, with Nikkei Asia expecting the country to attract another US$6 billion or so in foreign investment, equivalent to more than 1% of the nation’s GDP.

Such an influx of capital, Harron says, will bring more stability to the market through the participation of long-term institutional investors and address the current challenges posed by a retail-dominated market.

Regardless of the outcome of the FTSE Russell review, the Vietnamese stock market, Harron states, is likely to continue its growth trajectory, building on over 25 years of development since its first trading session in July 2000 and ultimately benefiting the broader Vietnamese economy.

Capital market opportunities

Meanwhile, there are opportunities in Vietnam’s capital markets, points out Shantanu Chakraborty, the Asian Development Bank ( ADB )’s country director for Vietnam, while addressing an investment promotion conference held by the Vietnamese Ministry of Finance in Ho Chi Minh City late in March.

“The Vietnamese capital markets can offer a wide range of opportunities for both local and foreign investors, including investment funds,” Chakraborty shares. “From equities and bonds to derivatives and mutual funds, the country’s market is diverse and growing.

“As has been experienced in other parts of developing Asia, robust bond and money markets will be important to attract investment funds with appetite for fixed income and liquid instruments like sovereign and corporate bonds, certificates of deposits or preferred shares.”

Regarding Vietnam’s bond market, the total of bonds outstanding in the country currently accounts for just over 30% of GDP, Chakraborty adds, compared with total bank credit of over 120% of GDP. Thus, there is a much greater role for the bond market and income investment funds to play in mobilizing both public and private capital to finance the country’s growth.

“Therefore, the ADB has been actively supporting the development of the capital markets in Vietnam,” Chakraborty points out, “through various initiatives, projects and partnerships aimed at enhancing financial infrastructure and promoting investment opportunities, including increasing the supply of local currency bonds in the nation.”

The ADB will continue to work closely with the Ministry of Finance, SSC and relevant stakeholders, he adds, to support the development of the capital markets, including that of the fund management industry.

“By leveraging foreign investment,” Chakraborty argues, “we can establish a dynamic financial ecosystem that fosters innovation and infrastructure growth, ultimately resulting in a more prosperous future for Vietnam”.