The growth of the Vietnamese capital market and the need for SSC monitoring | India is blooming

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Vietnam’s capital market has come a long way since trading its first shares at the Ho Chi Min Stock Trading Center (HCM) on July 28, 2000. Although capital market trading in Vietnam started in 2000 and was low until 2008-09, it increased after the global financial crisis of 2008-09, when Vietnam decided to join the World Trade Organization.

Meanwhile, Vietnam has also worked to modernize market infrastructure and introduce policy reforms, including the adoption of the Securities Law in 2006 (revised in 2010 and 2019), modernization of the two equity trading centers in HCM City (2007) and Hanoi. (2009) to exchanges, bond market reforms (2009), creation of the unlisted public companies market (2009), creation of the financial derivatives market (2017), adoption of decision 242 for the restructuring of the securities market and insurance in order to establish the legal framework and institutional framework of stock exchanges (2019) among others.

Today, capital market transactions account for 32% of the entire financial market in Vietnam. The competitive growth of the Vietnamese capital market is evident from the fact that the market’s total trade increased from USD 93.06 billion in July 2016 to USD 402.73 billion in March 2022, while the market capitalization to GDP ratio increased from 52.95% to 146.33% over the same period, making Vietnam one of the fastest growing capital markets among Southeast Asian economies.

Despite its spectacular growth, the Vietnamese capital market has recently experienced several cases of market irregularities and fraud. One of the first cases to come to public attention was in May 2019, when the Hanoi People’s Court sentenced Tran Huu Tiep, the former chairman of the board of Central Mining and Mineral Export, to life imprisonment. JSC (MTM). for manipulation of securities prices and misappropriation of assets.

Few other such cases were reported between 2020 and 2022, but two separate cases of market irregularities have come to the public’s attention lately. These are the arrest of Trinh Van Quyet, chairman of property developer FLC in March 2022 for stock market manipulation and concealment of information and the arrest of Do Anh Dung, chairman of property developer group Tan Hoang Minh in April 2022 , suspected of fraudulent appropriation of property.

The sudden increase in these market irregularities alerted the State Securities Commission (SSC) to take immediate action to verify the market irregularities. On the other hand, global financial experts believe that such cases are common in emerging markets.

While such cases can provoke knee-jerk reactions among investors, they also help policymakers craft appropriate policies. The World Bank’s Zafer Mustafaoglu urged Vietnamese policymakers not to overreact to these bizarre cases, but instead focus on market reforms and increasing product diversity. Similarly, Andrew Jeffries from the Asian Development Bank stressed the importance of developing market infrastructure like credit rating while pledging support to deepen the corporate bond market in Vietnam.

In addition, Vietnam’s Finance Minister Ho Duc Phoc, at a conference, informed that his ministry was working on developing better quality products and pushing for divestment from public sector companies for subsequent listing on the stock exchange. Vietnam’s Ministry of Finance is working to upgrade the capital market from “frontier status” to “emerging status”, which is expected to increase foreign participation in the local market.

While such initiatives are welcome, however, there is a need to undertake infrastructure and policy changes for the market to grow. Firstly, SSC should strengthen market surveillance and supervision by undertaking periodic reporting by exchanges, spot checks, etc. and ensuring strict penalties for offenders.

Policymakers should consider bringing market players such as exchanges, brokers and intermediaries under one roof to develop and adopt global best practices. The best way to achieve this is to create a self-regulatory body (SRO) that will complement the operation of the SSC. Second, Vietnam needs to develop programs to educate investors and improve financial literacy among the general public.

These programs will ensure that fraud and market manipulation are reduced, control misinformation and encourage investors to actively participate in the capital market. Third, with the reclassification of Vietnam’s capital market as an “emerging market”, it will see a sudden increase in foreign investment leading to demands for better infrastructure, including credit rating agencies, custodians, clearing companies, secure and secure IT infrastructure, reliable logistical support. among others. Vietnam must be prepared to fail to sustain this sudden increase in activity.

These tax reforms, aside, will also encourage retail and institutional investors to participate in the Vietnamese financial market. Fourth, product innovation is a continuous process for a dynamic financial market.

To ensure this, Vietnam must be ready to meet the needs of global investors in the new era, which is only possible through constant product innovation. By introducing differentiated financial products such as commodity and currency derivatives, forward and forward derivatives, alternative investment funds, Vietnam can cater to different investors with varied investment appetite.

Vietnam is emerging as a dynamic player in the global financial scene and is fortunate to be a favorable investment destination for investors from all over the world, including India. All that’s left to do is highlight the opportunities it holds!

(Arindam Goswami is a policy researcher at the Pahle India Foundation. He works on the financial sector and sustainable finance.)

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