Financial Crime World

Vietnam’s Capital Markets Poised for Growth Amid Challenges

Introduction

The Vietnamese capital markets are on the cusp of significant growth, according to a report by the CFA Institute Research Foundation. The country’s legal framework has been improved, new financial products and services have been introduced, and efforts are being made to upgrade its securities market classification.

In January 2021, Vietnam implemented the Securities Law, Corporate Law, and Investment Law, which has standardized the country’s legal framework for capital markets. This development is expected to facilitate sustainable growth in the sector.

New Financial Products and Services

Vietnam has introduced a range of new financial products and services, including:

  • Green bonds and stocks
  • Hedging instruments
  • Digital financial products

These innovations are expected to attract more investors to the market.

National Digital Transformation Program

The country’s national digital transformation program prioritizes the development of banking and digital financial services. Trends such as peer-to-peer lending and crowd funding are on the rise, providing new opportunities for firms and investors.

Upgrade to Emerging Markets Classification

Vietnam is working towards upgrading its securities market classification from Frontier Markets to Emerging Markets by 2023. This upgrade is expected to attract more foreign investments, particularly portfolio investments.

Economic Prospects

The report forecasts that Vietnam’s economy will experience bright prospects for early recovery from the impact of the COVID-19 pandemic and continued strong growth during 2021-2030, with an annual GDP growth rate of 6.5%-7%. The country is also seen as a bright spot for shifting investment and production chains due to trade and technological tensions between economic powers.

Challenges

Despite these opportunities, Vietnam’s capital markets still face several challenges:

  • Small market size: The size of the stock and bond markets remains small compared to those of its peers in the region, resulting in low liquidity and limited product range.
  • Limited diversity: The market lacks a diverse range of products and services, making it less attractive to professional investors and foreign institutional investors.
  • Limited investor base: Only about 3% of the population actively participates in the stock market.
  • Policy coordination: Weak policy coordination is a challenge, particularly when it comes to managing systemic risks in the financial markets.
  • Fundamental improvements: Fundamental improvements are needed in areas such as institutions, high-quality human resources, financial infrastructure, IT, big data, transparency, and disclosure.

Conclusion

Despite these challenges, Vietnam’s capital markets are poised for growth and development. As the country continues to improve its legal framework, product offerings, and investor base, it is expected that the market will continue to grow in importance as a channel for mobilizing funds and investments.