Vietnam, an emerging market poised for a transition from a lower-income to a middle-income nation, offers enticing prospects for potential investors, particularly within its stock market. Yet, venturing into the Vietnam Stock Market uninformed about its procedural intricacies can expose investors to potential risks. This article outlines essential details for establishing a stock market account in Vietnam to embark on prudent investment endeavors.
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Potential of Stock Market in Vietnam
The Vietnam benchmark index surged over 130% from March 2020 to January 2022, reaching a peak of 1536 points. In 2022, sentiment changed, leading to a more than 30% drop, with the index trading around 1020 points by October 21, 2022.
Up to October 21, Vietnam’s YTD index performance declined by more than 33%. In contrast, other Asian indices had mixed results. India’s Nifty 50 (INDIA50) saw a modest 2% increase, Thailand’s SET50 slipped by 4%, Malaysia’s KLCI index dropped by 6.57%, and Indonesia’s IDX Composite index gained over 5% over the same period.
In 2023, projections for Vietnam’s stock market suggest a more stable performance compared to the previous year. Shinhan Securities Vietnam (SSV) anticipates a VN-Index range of 1,000 to 1,100 points, which corresponds to a target P/E ratio ranging from 9x to 11x. Given limited cash flows, the market might show a preference for defensive stocks with robust financial foundations, low debt, and sufficient cash reserves to withstand challenging periods. Moreover, stocks benefiting from public investments could outperform the market when clear signals of significant capital disbursement become apparent.
The first quarter of 2023 witnessed a notable surge in the engagement of investor accounts within the market. By February 2023, the aggregate count of securities accounts had escalated to nearly 7 million, marking a discernible uptick of 1.45% in comparison to the concluding period of 2022. Foreign investors similarly demonstrated encouraging involvement, registering net acquisitions of shares and fund certificates amounting to approximately VND 7 trillion (US$ 300 million) spanning from the year’s commencement through March’s conclusion.
Since late April 2023, the market has displayed remarkable prowess, characterized by a persistent upsurge in liquidity, which has maintained an average of over 12,000 billion dongs per session over the past month. Notably, May has witnessed a rise in the number of newly established accounts, signifying a growing interest in market participation.
It’s projected that market valuation will progressively assume an appealing stance following the implementation of interest rate reductions. This is also a factor that bolsters the market’s standing. Throughout May and early June, the average E/P (Earnings-to-Price) ratio of the VN-Index hovered around 8%. This excluded a dividend yield of 1.7%. The E/P ratio and the 1-year term deposit interest rate in state-owned banks, which once showed a discernible gap, have now notably contracted. This is because the market valuation has undergone an upward shift, a consequence of the alleviation of negative Q1/2023 business outcomes.
In a more optimistic scenario, if inflation decreases more rapidly and accommodating monetary policies are implemented to boost economic growth, the VN-Index could potentially surge to a range of 1,200 to 1,250 points, indicating a significant increase of 15-20%. Commercial lenders may play a pivotal role in driving this advancement in the market.
Several macroeconomic factors look positive, contributing to the market’s enhanced stability. U.S. inflation indicators are signaling moderation. The pressure on the domestic exchange rate is gradually abating and Vietnam’s overall economic growth remains projected to sustain stability.
Prominent international institutions maintain bullish expectations for Vietnam’s economic outlook. Vietnam’s real GDP growth had been projected to be the highest within ASEAN. The International Monetary Fund (IMF) projected that it would reach 7% in 2022 and 6.2% in 2023.
Furthermore, experts suggest that the market has already absorbed many challenges. The significant market decline drove the VN-Index to its lowest valuation in over a decade, with a P/E ratio of 10x, thus creating valuable prospects for long-term investors. This advantageous position could transition Vietnam as an emerging market, within two years. Recent sustained net foreign buying trends reflect the appeal of these attractive valuations. Over a span of more than two consecutive months, foreign investors exhibited net purchases, totaling VND 27 trillion, on the Ho Chi Minh Stock Exchange (HOSE).
Here is a step-by-step guide to registering and investing in the Vietnam stock exchange:
1. Choose a Reliable Stock Broker
To begin your journey into the Vietnamese stock market, you have to select a reputable stock broker. As a newcomer, having a stock broker is crucial as they will offer guidance on high-performing stocks and act as an intermediary, especially for foreign investors. Major and reputable brokerage firms often have English-speaking customer representatives who can provide comprehensive assistance. Visiting their branches in person can enhance your understanding of investing in Vietnam’s stock market.
Opting for larger brokerage firms is advantageous due to their expertise and experience in stock brokering, which is vital for a successful investment journey. Your chosen broker will walk you through the account opening procedures and equip you with essential knowledge so that you can embark on your investment journey. You can also consider the following well-established names:
- Ho Chi Minh City Securities Corporation
- ACB Securities Company Ltd.
- Saigon Securities Incorporation
- Viet Capital Securities Joint Stock Company
- Vndirect Securities Corporation
2. Initiate Your Brokerage Account
Opening a brokerage account is a crucial step because it serves as your hub for trading equities and stocks listed on the stock exchange. It is the platform where you execute your stock-related decisions and monitor the outcomes of each action. The process of opening a brokerage account entails submitting requisite documents to the relevant authorities. These documents will also be necessary for subsequent steps in the investment process. While specific document requirements may vary based on your chosen brokerage company, the following list generally covers the essentials:
- A copy of your passport
- A completed account opening application
- FATCA Compliance Document (For US Citizens)
- Power of Attorney (POA)
- Securities Trading Code Application
3. Establish a Local Bank Account
A pivotal step in the process is to open a bank account within Vietnam. This account holds significant importance as it serves as the repository for your funds within the country. Additionally, it functions as the designated destination for the deposits of your earnings.
4. Acquire Your Securities Trading Code
An indispensable prerequisite for engaging in stock exchange activities in Vietnam is obtaining a securities trading code. This code functions as the unique identifier for traders and investors within the stock exchange arena.
Your engaged broker can play a pivotal role in guiding you through this obligatory procedure. Their involvement throughout the various steps ensures a smooth and error-free journey.
5. Commence Trading and Make Your Initial Stock Purchase
Finally, the moment you’ve eagerly anticipated has arrived. With your acquired securities trading code and the funds deposited into your brokerage account, you are now primed to embark on your trading journey. The avenues of shares and index funds in the Vietnamese stock market offer viable entry points.
These instruments are often integrated into a buy-and-hold approach and oriented towards securing long-term gains. However, they can also be employed for short-term trading strategies.
Foreign investors interested in venturing into Vietnam’s equity landscape must establish trading accounts with domestic brokerages, affiliated with the HOSE. Additionally, foreign individuals are mandated to open a local bank account and secure a securities trading code, These are prerequisites for commencing trading in Vietnamese stocks.
Moreover, the possibility of considering investment firms that wield substantial exposure to Vietnam’s corporate realm could prove lucrative. Notable examples include entities like the VinaCapital Vietnam Opportunity Fund (VOF) and Vietnam Enterprise Investments (VEIL). Prior to engaging in any financial commitments, it remains paramount to diligently undertake individualized research into the companies’ fundamentals and management structures.
Vietnam Stock Index Funds
For foreign retail investors aiming to seamlessly access Vietnam’s equity markets, index funds represent an appealing and streamlined avenue. These funds serve as a popular choice, facilitating exposure to the dynamic Vietnamese market landscape.
Numerous passive index-linked investment options, including exchange-traded funds (ETFs) and mutual funds, are at the disposal of investors seeking to mirror the trajectories of key equity indices like the FTSE Vietnam All-Share index and the FTSE Vietnam index. These investment avenues offer a hassle-free approach, obviating concerns surrounding foreign ownership constraints. The composition of these indices is subject to regular quarterly evaluations, ensuring that included stocks meet the requisite eligibility criteria. As a result, investors can confidently partake in these vehicles without being encumbered by ownership limitations.
Steps to Open a Stock Market Account in Vietnam
1. Compile Essential Documentation
For Individual investors:
- A valid passport
- At least four notarized copies of your passport.
For Investment Firms or Institutional Investors:
- 1 registration form for securities trading code, from the Vietnam Securities Depository
- 1 legalized copy of the incorporation certificate in the host nation, together with a notarized translation of the document into Vietnamese
- 1 copy of the Passport of the authorized representative
2. Opening a Vietnamese Bank Account
For Individual Investors:
- Overseas Account Opening
If you reside outside of Vietnam and intend to establish a trading account, communicate with consultants to facilitate the initiation of a bank account in your name.
- Onshore Account Opening
Individual investors situated in Vietnam must first establish a bank account with a custodial bank. This account can subsequently be linked to a stock trading account, allowing for seamless transactions.
Institutional Investor Guidelines:
Institutional investors must establish a custodial bank account, adhering to the following criteria:
- Submission of Certificate of Incorporation
- Presentation of ID/Passport belonging to the authorized representative
- Furnishing any additional forms stipulated by the Custodian Bank
3. Acquire Your Exclusive Securities Trading Code – Institutional Investors
For participation in stock trading or any form of securities trading within Vietnam, institutional investors are obligated to possess a Securities Trading Code. The process for obtaining this code has been previously outlined.
4. Launch Your Stock Trading Account
After completing the required documents, the investor needs to take them to the brokerage firm to complete the account opening process. It is also advised that the investor contact a brokerage company first to ensure that they have someone who can advise and assist them in their language through the entire process.
Setting up a stock account in Vietnam could be easier with a brokerage company helping out at every turn of the way. However, it is necessary for an investor to understand and make note of some specifics listed in the following section to avoid any procedural pitfall.
Risks of Vietnam Stock Market Account
While Vietnam’s stock market boasts substantial liquidity, it can vary considerably across different stock tickers. For instance, stocks like HPG (Hoa Phat Group) often trade over a million shares daily, whereas lesser-known stocks like HCT (Hai Phong Cement Transport Service Company) witness lower liquidity. Holding a significant amount of illiquid stock could pose challenges if selling becomes difficult due to limited buyer interest.
The transparency of Vietnam’s stock market has been a subject of scrutiny. Instances of fraudulent financial reporting are not uncommon, necessitating vigilance among securities investors. Distinguishing between surface-level information presented by companies and the vital details investors need to assess is crucial.
Risks Stemming from Brokerage Quality and Regulations
Securities firms may impose various regulations and constraints upon investors during the account opening process, including measures like call margin and escrow. It is imperative to thoroughly review the contract terms, as they can significantly impact your investment experience.
It is also imperative to note that foreign investors are prohibited from engaging in margin trading on Vietnam’s stock market, as stipulated in Circular No. 203 issued by the Ministry of Finance. Despite this regulatory restriction, certain entities persist in offering margin services to international investors. To safeguard against potential financial and legal risks, it is strongly recommended that investors refrain from utilizing these services.
Vulnerability to Market Fluctuations
Market volatility stands as a prominent concern for the majority of investors. Vietnam’s stock market is particularly sensitive and tends to experience significant fluctuations. This is in response to factors such as geopolitical conflicts, oil price fluctuations, shifts in interest rates, or currency depreciation. These external factors can trigger considerable price fluctuations and market volatility.
Important Notes for Trading in Vietnam’s Stock Market
Necessary Contract in the Vietnam Stock Market
Upon opening a stock account in Vietnam, you will typically encounter three essential contracts with the brokerage securities company. These contracts include the following:
- Stock Account Creation Contract
- Margin Contract
- Internet Banking Transfer Contract
Before appending your signature, it’s imperative to comprehensively grasp the content of each contract. Taking the time to fully understand these agreements ensures that you are aware of your rights, obligations, and potential risks involved in your stock market activities.
Keynotes regarding fees in the stock market
- Trading Fee: The trading fee holds significant importance among the various charges. Particularly for frequent traders, this fee constitutes a substantial portion of the overall costs. It is typically calculated as a percentage of the total trading value for the day.
- Custodial Fee: Brokers or financial institutions may levy custodial fees for safekeeping services. In Vietnam’s stock market, this fee is relatively low, amounting to 0.4 VND per share per month.
- Income Tax on Securities Sales: A tax of 0.1% is applicable to the sales value of securities. This tax is incurred upon selling securities.
- Cash Dividend Tax: Investors receiving cash dividends are subject to a tax of 5% on the actual value of the cash dividend received.
Navigating Internet Banking and Fund Transfers in Vietnam’s Stock Market
While regulations allow several local and foreign banks to act as custodians for foreign investors’ stocks, most major brokerage firms (such as HSC, SSI, and VCSC) collaborate primarily with BIDV (Bank for Investment and Development of Vietnam). This collaboration is due to factors like potential revenue and Vietnam’s stringent currency management regulations for foreigners.
BIDV, however, does not permit online money transfers for foreigners due to strict indirect investment management regulations. Typically, foreigners must personally visit a BIDV branch to complete the necessary money transfer documentation and procedures. Alternatively, if an investor has a representative in Vietnam, they can facilitate the transfer paperwork via BIDV. This will allow the investor to complete the transfer from outside Vietnam. This process may take around a week to finalize.
An alternative option is the security trading platform KSB, which collaborates with international banks such as HSBC, Citibank, Standard Chartered Bank, and Shinhan Bank. Opting for this route can be advantageous for foreign traders, as these banks offer English-speaking staff and have more experience assisting foreign traders.
Venturing into the Vietnamese stock market offers promising opportunities for local and foreign investors alike. Navigating this dynamic market requires a systematic approach and a clear understanding of the procedural intricacies. New investors can follow a structured path to enter the market. Meticulous preparation, collaboration with a knowledgeable broker, and a thorough understanding of the market’s intricacies are paramount. With due diligence and a strategic approach, investors can harness the potential of Vietnam’s stock market and contribute to their investment goals in this evolving economic landscape.
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