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To enter the Vietnam stock market, you need to deal with local brokerage systems, know about foreign ownership limits, or use indirect investment funds.
Have you ever wondered how foreign investors can enter one of Southeast Asia’s fastest-growing economies when there are strict rules in place?
If you want to diversify your investments into the fast-growing areas, you should first learn how to invest in the Vietnam stock market. People from Vietnam and other countries can buy Vietnamese stocks as long as they understand how the market works.
Vietnam is one of the most difficult markets to get into for the immediate future because of strict regulations on foreign ownership limits for many listed companies. This implies that people from other countries cannot just come in and buy as much of any local business as they want without any regulations.
This guide describes the market infrastructure, specific exchanges involved, and the legal avenues for gaining financial exposure to this unique area.
Quick Answer
Investors can buy shares directly in the Vietnamese stock market by opening a local securities trading account, or they can invest in funds that track Vietnamese stocks. Foreign investors should note that there may be limits on the amount of shares they can buy in some companies.
What Is The Vietnam Stock Market?
The Vietnam stock market is a financial system supervised by the government that allows individuals to trade shares of domestic enterprises.
This is a big sign of how well the country is doing economically.
The equity market was designed to assist the country in transitioning to a more open, market-oriented economy. Since then, it has become a major source of funding for state-owned and private enterprises.
If you want to know more about investing in the stock markets, you need to know what the situation is there. The State Securities Commission (SSC) manages the transparency of the market and the observance of trading rules.
HOSE has grown from just two listed companies at inception to over 391 stocks today, alongside 21 fund certificates.
The main index that tracks the biggest publicly traded companies in the region is the VN Index. This is a measure of the performance of the biggest, most capitalized, and most liquid companies in the country.
People can have an idea of the overall sentiment of the market as well as the performance of particular sectors by looking at the VN Index. Ho Chi Minh City and Hanoi have the physical and digital infrastructure that facilitates these domestic trades.
Key Characteristics Of The Vietnam Stock Market
The local stock market is growing rapidly, there is a strong industrial base, and it is slowly being integrated into global financial systems.
- Potential in Emerging Markets: Potential Groups like FTSE Russell watch the space for potential upgrades. The region is undergoing robust industrial expansion and realignment of global supply chains.
- A Wide Variety of Businesses: A lot of real estate, banking, and consumer goods companies are in the market, a sign of a fast-growing middle class.
- More People Involvement: More and more foreign institutional and retail investors are getting involved despite the rules against it, due to the region’s GDP growth.
What Exchanges Make Up The Vietnam Stock Market?
The Vietnam Stock Exchange network has 2 main places it splits up into: the Ho Chi Minh Stock Exchange (HOSE) and the Hanoi Stock Exchange (HNX).
These two separate exchanges are important to the market because they organize, regulate, and facilitate the trading of various types of financial instruments and companies of all sizes.
Ho Chi Minh Stock Exchange (HOSE)
HOSE is the main exchange for large Vietnamese companies and accounts for the bulk of the country’s stock trading.
HOSE was established in 2000 and includes the most liquid and followed stocks in the country. The VN Index is highly correlated with the performance of HOSE as its listed companies have high market capitalization and high trading volume.
This exchange is home to the country’s biggest multinational banks, biggest real estate developers, and biggest consumer brands. The HOSE has strict listing requirements that require companies to be more profitable and transparent with their finances.
HOSE currently lists 402 securities with a total market capitalization of approximately $330 billion.
Hanoi Stock Exchange (HNX)
HNX is the secondary exchange and mainly caters to smaller companies, mid-sized businesses, and the national bond market.
The Hanoi Stock Exchange was established later than the HOSE. It is a place where companies that may not yet meet the strict listing requirements of the main exchange can trade. HNX is the main trading venue for government bonds and local derivatives, and it also has trading in illiquid stocks.
| Feature | Ho Chi Minh Stock Exchange (HOSE) | Hanoi Stock Exchange (HNX) |
| Primary Focus | Large-cap companies | Small to mid-cap companies |
| Key Benchmark | VN Index | HNX Index |
| Liquidity & Volume | High | Moderate to Low |
| Additional Assets | – | Government bonds, derivatives |
How Can Foreign Investors Buy Vietnam Stocks?
To buy Vietnamese stocks, foreign investors must either open a registered local brokerage account to access the market directly or purchase funds specific to the region.
There are some administrative steps involved to access these assets that are very different from trading in fully developed markets. As a rule, foreign actors pursue one of two main routes to carry out their plans.
Direct Investment Through A Local Account
To buy shares directly on HOSE or HNX, you have to open a registered securities trading account in Vietnam, in person or online.
This is a multi-step process. Foreign investors need to register with the State Securities Commission and get a Securities Trading Code (STC). Usually, people who want to do this will have to have their passports and other forms of ID notarized.
Investors must also open an Indirect Investment Capital Account (IICA) with a bank licensed to operate in their area. All money to buy stocks has to be transferred to this specific bank account in local currency. That makes it easier for regulators to monitor foreign capital flows.
Indirect Investment Through Funds
For investors who wish to avoid the rigmarole of local registration, there is indirect exposure through Exchange Traded Funds or mutual funds that focus on Vietnam.
These funds pool money from around the world and invest in a basket of Vietnamese stocks. This allows for immediate diversification without having to open a bank account in Vietnam or an STC.
These funds can be bought and sold by investors on their usual domestic brokerage platforms as they are traded on major global exchanges like the NYSE and LSE.
Platforms like STARTRADER allow investors to access globally listed ETFs without navigating local Vietnamese account requirements.
Understanding The Foreign Room Concept
The “foreign room” is the legal amount of total shares of a company that foreign investors can buy and own.
Anyone investing directly has got to watch the foreign market. A company’s foreign room at 0% means no more stock can be bought by international buyers.
Now foreign investors cannot buy shares on the open market at regular prices. Instead, they have to find other, often more expensive, ways to get them.
What Should You Know About Vietnam Foreign Ownership Limits?
Vietnam has strict rules on how much of a company a foreigner can own, particularly in protected and strategic sectors.
The national government has tight limits on the amount of power foreign companies can wield over businesses in the country. Public companies can be 100% foreign owned if approved by their board, but critical industries are tightly capped.
For instance, the banking sector typically restricts total foreign ownership to 30%, while telecommunications and logistics sectors can be capped at 49%. Once you hit the foreign ownership limit of a stock, foreigners can’t buy it on the open market anymore.
If a foreign investor still wants to buy a full stock, he has to find a foreign shareholder who wants to sell. These trades are done off-exchange and usually come at a price above the current market price.
The World Bank and other global financial institutions that monitor regional policies say the restrictions on regulation are to protect national interests, but are reviewed periodically and may be loosened as the economy expands.
What Are The Risks Of Investing In Vietnam Stocks?
Investments in this area are subject to special risks such as exchange rate fluctuations, limited liquidity, and abrupt changes in legislation.
Every financial market has its own problems, but emerging economies need extra care for macroeconomic factors and operational problems.
- Currency Risk: The currency for all local investments is the Vietnamese Dong (VND). The total returns of an investor will be directly affected by exchange rate movements between the VND and the local currency of that investor. It is important to properly manage currency risk so as to protect the value of capital.
- Liquidity Risk: Most of the large-cap, blue-chip stocks on HOSE have high liquidity. However, small stocks on HNX may be less liquid because they are not traded as much. That makes it difficult to exit big positions fast without moving the stock price.
- Regulatory Risk: Policies in frontier markets can change rapidly. Tax laws, rules about how much foreign ownership is allowed and laws about trading can all change very quickly and this could make it harder to get access to the market and could change the value of assets.
- Market Volatility: Emerging markets are typically more volatile than developed markets. They are swings caused by local economic data, global capital flows, or regional geopolitical events.
- Access and Operational Complexity: Obtaining an STC, handling foreign room limits, and translating documents are all additional work not part of normal domestic trading.
FAQs
Yes, citizens of other countries and international organizations can also take part in the market. However, they are subject to strict limits on the level of foreign ownership and must comply with certain administrative requirements such as obtaining a Securities Trading Code and establishing dedicated bank accounts.
VN Index is a capitalization-weighted benchmark index which reflects the performance of all the major companies listed on Ho Chi Minh Stock Exchange (HOSE). It is the best barometer of the health of the country’s stock market.
The government has put a cap on the percentage of the total outstanding shares in a company that can be legally owned by non-resident investors. Once this quota for that sector is exhausted, foreigners can’t buy any more shares at the regular open market price.
Yes, there are a number of international exchange-traded funds that only track Vietnamese stocks. These funds provide investors with exposure to the region without having to open a local brokerage account.
Final Thoughts
You have an opportunity to benefit from the fast economic growth in the Vietnam stock market, but you should be aware of local rules, currency fluctuations and special account arrangements.
You can see the economic boom in Southeast Asia firsthand on the HOSE and HNX exchanges in Vietnam. You will be subject to tight restrictions on foreign ownership and the cumbersome process of obtaining a Securities Trading Code.
Currency and liquidity risk are risks you must respect, whether you go for direct local accounts or global ETFs. This new market is fast-paced, and knowing the local rules will keep you on your toes.
Disclaimer: This content is for educational purposes only and does not constitute investment, financial, or legal advice. CFDs are complex instruments and carry a high risk of rapid money loss due to leverage. Emerging market investments involve additional risks including currency fluctuations, limited liquidity, and regulatory changes. Any references to regulations or market structures are general in nature and subject to change. Seek independent professional advice before making any investment decisions.
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