Vietnam prepares ground for stronger capital markets to foster higher economic growth

[HO CHI MINH CITY] The year 2024 saw Vietnam take some big steps in its development of more diverse and healthy capital markets, with the government hopeful that these will help the country’s economic growth to reach new highs in the coming years.

In December, Prime Minister Pham Minh Chinh underlined the need for more efficient capital mobilisation via financial markets in an effort to push Vietnam’s gross domestic product growth to 8 per cent in 2025, and enter the double-digit range during the 2026 to 2030 period.

Due to the limited access to capital markets and the scarcity of long-term financial instruments, Vietnamese businesses have so far relied mainly on bank financing, which is predominantly short-term.

According to a World Bank report, Vietnam’s capital market size as a percentage of GDP – which stood at around 100 per cent in 2023 – was smaller than those of the Philippines, Thailand, Malaysia and Singapore.

Over the past 12 months, Vietnam has made significant progress to reach its goals, including the preparation for a stock-market upgrade, a push to utilise the sovereign debt market to finance critical infrastructure, and imposing tighter regulations on the corporate bond market after a major crackdown on corrupt tycoons.

It is also expected to set a legal framework for virtual assets and pilot a carbon credit market in 2025, as well as outline a programme to turn Ho Chi Minh City and Da Nang into international financial hubs.

The Business Times explains these key developments in greater detail and gives an outlook for Vietnam’s capital markets in 2025. 

Stock market

Vietnam’s US$270 billion stock market – the smallest among the main economies in South-east Asia – has been striving for inclusion in emerging-market indices provided by either FTSE or MSCI by 2025. It has been on FTSE’s watch list for a reclassification from the current frontier status since 2018.

The World Bank has forecast that the stock-market upgrade could bring up to US$25 billion in new investments from international investors to the Vietnamese stock market by 2030.

However, in 2024, foreign investors net sold an unprecedented level of around 93 trillion dong (S$5 billion) on the market as they continued adjusting their portfolios amid uncertainties arising from geopolitical developments and US president-elect Donald Trump’s policies, as well as the weakening of the dong by around 5 per cent against the US dollar.

Despite the strong net selling pressure from foreign investors, the VN-Index – the main stock index of the Ho Chi Minh City Stock Exchange – has risen about 12 per cent in 2024, driven mainly by domestic investors.

In September, the country updated pivotal rules that removed the pre-funding requirement for international investors purchasing equities, which was a major hurdle in meeting FTSE’s upgrade criteria. However, a well-defined implementation road map for such regulations is still required, said observers.

“It remains imperative that the pace of change is maintained if Vietnam is to meet the 2025 targeted deadline,” the index provider noted in its report in October. 

On Nov 29, Vietnam’s National Assembly voted to approve amendments to the Securities Law, which introduces provisions critical to settlement efficiency and improved transparency of the stock market. 

The country’s stock exchanges and Vietnam Securities Depository and Clearing Corporation are also preparing to upgrade their IT system in 2025, as well as launching new products on the market.

Corporate bond market

Over the past year, Vietnam’s court convicted real estate tycoons who were the masterminds behind major bond frauds, including Van Thinh Phat’s former chairwoman Truong My Lan and Tan Hoang Minh chairman Do Anh Dung. 

The crackdown on those ill practices resulted in the years-long slowdown of the real estate and corporate bond markets since 2022, amid tighter regulations and weak investor confidence.

Signs of recovery became evident in 2024 with the total bond issuance value in the first eleven months of the year reaching 403 trillion dong, up 60 per cent from a year ago, according to MB Securities.

The recent amendments to the Securities Law, including the eligibility criteria for public bond issuers, key obligations of bond issuers and related parties, and the participation of professional securities investors, also provide greater transparency as well as enhanced protection for bondholders.

In particular, the revised law allows foreign individuals and entities to engage in Vietnam’s corporate bond market if they are qualified as professional investors.

Government bond market

As Vietnam is making strides in major infrastructure projects, including the US$67 billion cross-country high-speed railway and the metro networks in its two largest metropolises, the government has pushed for a more robust use of bond issuance as an important fundraising channel instead of relying on capital from other countries.

Experts see this as an opportunity for Vietnam to develop its relatively small domestic debt market with longer maturities, new products and a more diversified set of investors.

So far, the local currency government and municipal bonds in Vietnam remain unattractive to investors and asset managers due to low yields and insufficient liquidity in the secondary market.  

As at the end of 2023, the values of listed government bonds and municipal bonds on the Hanoi Stock Exchange were equivalent to about 17.6 per cent and 0.1 per cent of the country’s GDP, respectively, according to data from the Vietnam Bond Market Association.

Government bond yields are low relative to the policy rate, private-sector lending rates, and peer countries in South-east Asia, according to a study released in September by the International Monetary Fund.

The investor base of the market is also narrow, largely made up of banks, insurers and the Vietnam Social Security fund, and saw little involvement from foreign investors or mutual funds.

Carbon credit market 

As Vietnam is outlining a programme for its compliance carbon market, the country plans to operate its carbon credit market on a trial basis during the 2025 to 2028 period with an official launch nationwide in 2029. 

Over the three-year trial period, the pilot market is going to run domestically without facilitating sales to international entities.

In a separate draft amendment to rules on greenhouse gas emissions, around 200 facilities in the power, iron and steel, as well as cement industries in the country are expected to receive emission quotas in 2025 and 2026. 

Virtual-asset market

Vietnamese authorities are mulling over policies for virtual assets and related service providers, officially pushing the cryptosphere out of a grey area by establishing a legal framework by May 2025.

While the sector is still unregulated in the country, more than 21 per cent of the Vietnamese population had owned cryptocurrencies as at 2023, according to a report by payment platform Triple-A. 

The rate is the second highest globally, only behind the United Arab Emirates, and is almost three times greater than the country’s stock-ownership ratio.

With the estimated crypto transaction volume between July 2023 and June 2024 at more than US$100 billion, the country is ranked by US blockchain analysis firm Chainalysis as one of the top three crypto markets in the Central and Southern Asia and Oceania region, behind Indonesia and India. 

However, regulatory uncertainty is plaguing Vietnamese entrepreneurs who are employing the assets as fundraising tools and innovative products via the use of blockchain technology, pushing them to set up business overseas while utilising domestic talent and resources.