Besides, there are many limitations which render investors less intrigued, especially international investors, who encounter difficulties in assessing risks and making investment decisions in Vietnam.
The scale of market, for example, Vietnam’s market capitalization accounts for approximately 0,12% of the world’s total market capitalization, according to the World Federation of Exchanges’ latest report in February 2020.
And a variety of other elements that could tell the difference between Vietnam’s stock market and the international market will be discussed in this article. The statistical summary will be mainly conducted in 2020, with sophisticated trends in the market, to see the difference clearly.
First, let’s have a look at the history of Vietnam’s stock market.
Vietnam Stock Market
Ho Chi Minh Stock Exchange (HOSE or HSX), located in Ho Chi Minh City, is the largest stock exchange in Vietnam. It was established in 2000, which is active as an administrative agency of the State Securities Commission.
Hanoi Stock Exchange (HNX), located in Hanoi, Vietnam, was launched in March 2005 and handles auctions and trading of stocks and bonds. It was the second securities trading center to open in Vietnam after HOSE. Total market capitalization of HSX and HNx is approximately 140 billion U.S dollars, which is equivalent to about 54% of Vietnam’s GDP (World Bank).
VN-Index is a capitalization-weighted index of all the companies listed on the Ho Chi Minh City Stock Exchange. The index was established with a base index value of 100 as of July 28, 2000. Prior to March 1, 2002, the market only traded on alternate days. VN-Index represents a large proportion of Vietnam stock market and represents the domestic economy.
World’s stock market in turmoil
Financial markets around the world are confronting an unprecedented crisis and continuous bearish trend that ruined all of the achievements in the last 12 years since the financial crisis 2008. The reason is quite clear due to the coronavirus and the fear of investors towards the bloomy future of the world’s economy.
Asian markets and the U.S market with leading indices such as Dow Jones, S&P 500, Nikkei 225,… have also witnessed the largest decrease since the financial crisis in 1987 and 2008 with unpredictable outcomes.
Vietnamese stock market seems not to stand out of the bearish market at the time given the impact of the leading market to neighborhood markets is obvious. Throughout the first 3 months of 2020, VN-Index decreases from 966.67 to 709.73 (around 30.9% down), while DJIA decreases from 28868.2 to 19173.98 (around 36.3% down). JCI (Indonesia), SET (Thailand) and STI (Singapore), KLCI (Malaysia) significantly decline -40.4%, -34.8%, -29.9%, -20.7%, respectively.
This relatively weak correlation can be explained by the duration of trading hours, the time zone, the index calculation frequency, the total market capitalisation.
VN-Index is one of the least volatile index
But looking more at details, we can observe that VNI is less volatile than DJIA and other neighborhood indices in the last months.
The 3-month volatility of VNI is only about 23%, compared to that of KLCI (Malaysia) is 24%, STI (Singapore) is 24%, JCI (Indonesia) is 28%, SET (Thailand) is 38% and DJIA (U.S) is 53%. SET is somehow similar to DJIA with many bloomy dates of decrease (the worst was -11.43%). The Philippines’s authority even has to close the market and stop all of the investments in the stock market in order to prevent the plunge of the PSE index.
In summary of the first 3 months, DJIA and VNI have nearly the same dates of decrease, but DJIA has larger number of dates with steep decline and even has the worst date ending in dropping more than 13.84% (the worst date of VNI was only -6.5%, the rest are mostly small decrease). In 5 trading dates of DJIA with highest extent of decline since the early 2020 (from -6% to more than -13%), VNI were not affected substantially with a modest decline ranging from -0.27% to -5.33% (especially there is even 1 date of slight increase) in the next observed trading dates.
And VNI also has more trading dates of the bullish market (20 dates) while DJIA has only 16 dates. However, VNI has less dates of witnessing sharp increases (from +4% to +7%) in comparison with DJIA. This also explains why DJIA’s volatility is by far higher than that of VNI or STI.
Vietnam’s stock market is weakly correlated with the world’s
Even though VNI suffered from a loss of around 34.7 billion USD in terms of market capitalization since the beginning of 2020, the level of instability of VNI is quite low if compared to other indices with continuous abnormal changes.
Shorter trading hours of VN-Index may help explain this phenomenon, because other indexes such as DJIA have longer trading hours that can promote different trends in the market and thus are exposed to more risks. Although there is also no circuit breaker for any index in Vietnam, thus no protection against risks.
Another reason is that the total market capitalization of Vietnamese stock market is relatively small compared to the U.S market, or that of Thailand, Singapore and Indonesia. And most of the listed companies in HNX, or a proportion of HSX’s companies belong to small-cap or mid-cap groups, which are truly smaller than their counterparts in foreign markets.
The above-mentioned evidence proves that VNI is just partially influenced by the international market with leading indexes like DJIA. On the other hand, good news is that VNI has not plummeted too much as the DJIA, which has lost nearly one-third of points since the beginning of 2020. But it is not time to have a good conclusion at the moment because the worst is yet to come.