VPS | Overview of the Capital Market

Many investors still don't fully understand the concept of the capital market or grasp the characteristics, opportunities, and challenges of the current Vietnamese capital market. The following article provides an overview of some key aspects of the capital market in Vietnam.

Basic concept of the capital market

The capital market is understood as a market that provides long-term investment capital to individuals, organizations, businesses, and governments in the economy. It is a part of the financial market that functions to supply short, medium, and long-term investment capital to the economy through arrangements for borrowing and lending money with various conditions and terms.

In general, the capital market is one of the main components of the financial sector. Through arrangements for borrowing and lending money with different conditions and terms among individuals, organizations, and businesses, it serves the function of providing long-term investment capital to the economy.

Vietnam's capital market has emerged and developed strongly since the stock market started operating in the early 2000s. The capital market has undergone a structural shift from credit institutions and banks to the stock market. With the promotion of the privatization process, the number of public companies has increased, and the demand for borrowing and lending connections among entities, organizations, individuals, as well as domestic and foreign organizations, has been growing rapidly.

The strong development of the stock market and corporate bond market from 2005 to 2020 has made the Vietnamese capital market more attractive and important than ever before. The number of listed companies has increased, many companies have successfully listed on the HSX, HNX, and UPCOM exchanges. The volume of private bond issuances and public bond issuances has increased significantly from 2015 to 2019. People and investors have gained more trust in capital mobilization and investment activities; they have a better understanding of financial instruments and products in the market. The stock market has truly become an important channel for capital mobilization for the Vietnamese economy. Moreover, the stock market has a more solid and refined structure.

Challenges of the Vietnamese capital market

The capital market, financial market, and stock market in Vietnam are in a stage of development with many rudimentary points, and new financial instruments and products are still limited in some areas such as stocks, bonds, and futures contracts. Options trading and mortgage markets are not well-developed.

Clearly, with a small scale and few types of products, the Vietnamese capital market still lacks recognition on the map, with a low position among emerging markets in Asia-Pacific and globally.

Additionally, Vietnam's primary capital market is highly risky, with very few reliable options and not many products suitable for investors' needs.

Despite the increasing number of investors, especially during the period of 2020-2022, many investors still have the habit of investing heavily in assets such as gold, real estate, or bank savings rather than investing in stocks and bonds.

However, the bright spot of the market is the changing and improving investor awareness. Along with that, the Vietnamese economy has a relatively stable growth rate; inflation is kept low compared to other countries in the world and the region. According to assessments by many experts and organizations, Vietnam's capital market still has a lot of room for development and has a bright future in the coming years.

The process of upgrading the market will be a driving force for the development of Vietnam's capital market

Vietnam's capital market is forecasted to continue its growth momentum based on the government's policies and specific plans to promote the state-owned enterprise equitization and divestment, such as those of the Ministry of Industry and Trade, PetroVietnam, Petrochemical Corporation, and Vietnam Rubber Group. The process may be a turning point in the period 2024-2025 when the Vietnamese stock market has the opportunity to be listed for upgrading from the frontier market to the emerging market. Foreign investors and international organizations will have many opportunities to disburse and invest in Vietnam's capital market and stock market. This is a great opportunity for listed companies, financial institutions in particular, and the Vietnamese market in general.