Vietnam’s Stock Market: Tips to Help You Win
Since HOSE (Ho Chi Minh City Stock Exchange) was created in 2007 (an upgrade of the Ho Chi Minh City Securities Trading Centre, created in 2000), Vietnam’s stock market has experienced many changes and developments.
Today HOSE is one of three stock markets in Vietnam, operating alongside Hanoi’s exchange (HNX) and the Unlisted Public Company Market (UPCoM), a smaller exchange within HNX aimed at companies that don’t have the capital or liquidity to go public on HOSE or HNX.
At last count, around 700 companies were listed on the HOSE and HNX markets put together. And while the number of companies is somewhat evenly split between the two exchanges, the market capital certainly isn’t.
Trading capital on HOSE typically drifts somewhere between $50 and $55 billion at a given time, while HNX stays somewhere around $6 billion. Barry Weisblatt, Research and Analysis Director at Viet Capital Securities Company (VCSC), thinks the difference has to do with reputation: “Institutional investors look at HCMC as the economic hub.”
So how are recent business developments affecting HOSE today?
More Choices, More Money
In 2016, all three stock exchanges worked with a total of around $70 billion. When taken in context, this is actually pretty minimal. It’ll take a lot of work and development to get HOSE up to the standard of global players like the Stock Exchange of Thailand, which aims to trade $702 billion by 2020, but both investors and Vietnam’s government are taking steps to grow HOSE.
The first and most important step? Adding more heavy hitters to the exchange. Not only will more blue chip stocks add capital to the market, bigger names will also help attract well-heeled investors, foreign as well as domestic.
And this is exactly what has been happening. We’re currently seeing big companies going public – and public companies selling massive amounts of shares – like Novaland (with an initial public offering, or IPO, listed in November 2016), Vietjet (planning to list in the first quarter of 2017) and Vinamilk (another 5.4 percent of the company was sold in December 2016).
Weisblatt says this is a major step forward, both for HOSE and Vietnam’s economy in general, and a lot of it has to do with bringing new blood into the investment scene. He says that potential investors “love the story in Vietnam – the economy is doing great; there’s the emerging middle class; all the foreign investment; the trade agreements.”
But they’ve also wondered, “What can we invest in?” Right now around 80 to 85 percent of investors in HOSE have been local, but Weisblatt is seeing strong interest from new foreign investors.
Plus, the government has recently made a change that might affect the market more than we know. It’s called Decree No. 60, and it’s getting brokers pretty excited.
Before Decree No. 60, foreign ownership of all publicly listed companies was limited to 49 percent for most stocks and 30 percent for banks. With Decree No. 60, however, companies can now apply to increase their foreign ownership cap to 100 percent.
So far only about 12 companies have increased their limits, but Weisblatt is hoping that more will follow suit. He is optimistic and believes that a whopping $100 billion will be listed by December 2017 – a $30 billion increase from 2016. What will make up this substantial growth? At least part of it will come from foreign investors.
Right now, Vietnam is classified as a Frontier Market by the Morgan Stanley MSCI, a yearly grading system that analyses the growth and effectiveness of global markets.
Many institutional investors are prohibited from investing in Frontier Markets, so the Vietnamese government, as well as brokers, are working hard to move Vietnam to the Emerging Market classification, which would improve its prestige and reputation and attract more globally managed money.
Size and liquidity are factors, sure, but these aren’t the only things Morgan Stanley looks at. HOSE will also need more access to foreigners (Decree No. 60 should help with this) and increased transparency in general.
These developments are all very doable, Weisblatt says, although it may take a few years. Just as important is what going public is doing for Vietnam’s businesses in general. Shareholders are now demanding higher levels of profitability, efficiency and transparency. With these changes, it looks like shareholders will get their wish.