Vietnam Securities Law at a crossroads: Addressing current challenges and shaping future policies
October 9, 2024
Highlights
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Vietnam has benefited from the shift of supply chains from China and, despite volatility, remains one of the fastest-growing countries in the Asia-Pacific region. The key drivers include FDI, exports, and domestic consumption, which are all solid. In terms of GDP, Vietnam achieved 5.1% growth in 2023. For the first half of 2024, GDP expanded by 6.4% year-on-year. The World Bank and other sources estimate Vietnam’s GDP will grow approximately 6% for the full year of 2024.[1]
In addition to strong economic fundamentals, political stability remains a major factor in Vietnam’s growth, supported by a one-party system led by the Communist Party of Vietnam. The Party has pursued significant internal reforms over recent years, primarily through a broad anti-corruption campaign aimed at improving long-term governance and transparency. However, in the short term, this campaign has raised investor concerns regarding policy stability and potential delays of regulatory approvals. In August 2024, His Excellency To Lam was appointed as the new General Secretary of the Party, with policy priorities centered on (among others) advancing the economy through technological development and fostering private sector growth. This clear directive from Vietnam’s leadership signals a new phase focused on economic growth alongside ongoing anti-corruption efforts.
To support economic recovery, the State Bank of Vietnam has implemented two important measures. First, it adopted a low-interest rate policy, reducing rates four times in 2023 to stimulate lending and support businesses. The cumulative rate cuts ranged from 1.5% to 2% across various rates.[2] The second measure involves easing credit restrictions in the real estate sector, allowing banks greater flexibility to lend to both developers and buyers. This policy aims to facilitate increased capital flow into the real estate market.
Strong economic fundamentals, political stability, and accommodative monetary policies for the economy and real estate sector have laid a solid foundation for capital market growth. The actions taken by the SSC in addressing current challenges in the next 6-9 months will be crucial for the recovery of the stock markets. Such actions will also facilitate the anticipated upgrade from “frontier” to “emerging” market status, first by FTSE Russell in September 2025, and subsequently by MSCI in the 2026-2027 period.[3]
Current Challenges
Like most regional markets, Vietnam’s securities markets are currently below their peak levels. By 2030, the Government targets stock market capitalization to reach 120% of GDP, and bond market debt to reach 58% of GDP. By end of 2023, the stock market size was 63% of GDP (approximately USD258.93 billion)[4] and the bond market size (including Government bonds and corporate bonds) was 28% of GDP (approximately USD115.08 billion).[5] Vietnam’s GDP in 2023 was approximately USD411 billion. Several external and internal factors have contributed to this market stagnation.
Geopolitical issues like the Russia-Ukraine war, U.S.-China trade tensions, and Middle Eastern conflicts have disrupted global supply chains and increased market volatility. Investors react to these uncertainties with risk aversion, by investing in safer assets like U.S. Treasuries, while emerging markets often face capital outflows during such periods. Foreign funds and investors are an important component of the institutional investor system in the Vietnamese stock market. However, foreign investors have been continuous net sellers since 2023. Specifically, they have sold USD2.6 billion since the beginning of 2024 and, from 2023, this group has sold approximately USD4 billion.[6]
The VN-Index is trading at a P/E ratio of 13-14x, lower than other ASEAN countries. While this presents a favorable valuation level for cash-ready investors, performance of listed companies remains subdued. In the past two years, Dragon Capital’s analysis of 80 large companies, which account for over 80% of the market capitalization, found no profit growth. A market without profit growth for two consecutive years (2022-2023) would drive investors away. This is a very significant factor in the recent outlook of foreign investors.
Liquidity remains a substantial challenge for Vietnam’s stock market. In 2024, the daily trading value has been approximately USD800 million on the Ho Chi Minh City Stock Exchange and USD100 million on the Hanoi Stock Exchange, reflecting limited market depth and activity compared to larger regional markets.[7] The dominance of retail investors in the stock market is a significant factor contributing to this constraint. These retail participants, who make up a considerable portion of the trading volume, tend to focus on shorter-term, speculative trading rather than long-term investment. The limited participation of institutional investors, both domestic and foreign, results in a smaller base of capital focused on stability and long-term growth, which restricts liquidity and, ultimately, development of the market.
Finally, the past two years have been marked by intensified enforcement actions. As part of the ongoing anti-corruption campaign, the SSC and other regulatory bodies have ramped up scrutiny, particularly focusing on the real estate, banking, and construction sectors. Several companies, including Van Thinh Phat, FLC Group, and Tan Hoang Minh, were found to have engaged in activities such as stock price manipulation, providing misleading information to issue securities, and misusing offering proceeds. These actions have impacted thousands of retail investors, leading to social unrest and public outcry.[8] While the investigations caused short-term market disruptions, they also heightened caution among investors and regulators. As a result, the pace of transactions in both the stock and bond markets has slowed, with many deals being deferred.
Policy Objectives
The SSC has two broad policy objectives to (i) support the development of Vietnam’s capital markets and (ii) create a more stable and transparent environment to manage systemic risks and protect retail investors.[9]
Achieving the government’s 2030 targets—stock market capitalization at 120% of GDP and bond market at 58% of GDP—requires expanding participation of both domestic and foreign institutional investors to enhance market depth and liquidity. It also necessitates diversifying financial products, including derivatives, exchange-traded funds (ETFs), and structured products, as well as modernizing market infrastructure and technology, particularly in trading, clearing, and settlement systems. Finally, relaxing foreign ownership limits, easing capital flow restrictions, and adopting ESG standards, along with other international best practices, are essential.
Enhancing market transparency and governance is a top priority to build investor confidence. The SSC is focused on enforcing stricter disclosure standards, particularly in financial reporting and information transparency, to ensure investor access to accurate and timely information. Increasing enforcement of market manipulation and violations—especially in high-risk sectors like real estate, banking, and construction—also helps manage systemic risks and protect retail investors. Due to the lack of class action cases and the generally low sophistication of retail investors in Vietnam, the SSC follows a merit-based approach rather than a disclosure-based one. More restrictive than the disclosure-based system, this approach involves regulators assessing not only disclosure adequacy but also the “merits” of the securities offered, evaluating potential returns, risks, and fairness for investors. Regulators determine the suitability of investments for retail investors, with prescriptive disclosure requirements. For instance, in bond transactions, regulators carefully review the use of proceeds, requiring submission of licenses and permits for projects funded by bond proceeds.[10] Vietnam is not alone in this approach; regulators in several other markets in the region adopt similar practices.
At times, the focus may shift between different objectives, and balancing of policy priorities can be challenging, depending on economic, political, and market conditions. Recent intensified enforcement efforts and weak market performance over the past two years suggest that the SSC is prioritizing systemic risk management and retail investor protection, placing less emphasis on market recovery and development. To be fair, the SSC has worked tirelessly to facilitate the upgrade to emerging market status. However, the proposed amendments to the 2019 Securities Law further underscore this approach.
Recent Changes in Law for Market Upgrade
Since its inception in 2000, the leading global rating agencies (MSCI and FTSE Russell) have classified the Vietnamese stock market as a frontier market. The SSC has long been working on a plan to upgrade the FTSE Russell status to emerging market in 2025. The MSCI upgrade could occur in the following 2-3 years.
The remaining key issue for the FTSE Russell upgrade is the requirement of pre-funding before trading.[11] Currently, trading is made on a T+2 basis, which requires investors to place the order and pre-fund two days before settlement. For foreign investors, this means capital is locked up for 2 days, thereby reducing flexibility and preventing them from using that capital for other opportunities during the waiting period. Foreign investors have long voiced concerns over this requirement. The SSC recently decided to remove this requirement, and investors may fund at any time before or on the settlement date. The SSC has been working with securities firms and other stakeholders to implement the new settlement mechanism, which is effective from November 2, 2024. It represents a major step towards meeting FTSE Russell’s requirements for upgrade to emerging market status.
In addition, the SSC is addressing other issues, such as gradually relaxing foreign ownership limits (FOL), to meet MSCI’s upgrade requirements. FOL remains an issue for sensitive sectors like banking. For example, foreign ownership of banks is capped at 30%. In many Vietnamese companies, especially large-cap stocks, foreign ownership has already reached the limit. This makes it difficult for new foreign investors to purchase shares, restricting capital inflows. FOL in sensitive sectors will not change in the short term, as the Government wants to limit foreign ownership in important sectors. However, it remains possible for Vietnam to resolve FOL issues in non-strategic sectors. The most viable path for Vietnam is a phased approach, i.e., a combination of gradual liberalization in non-strategic sectors, improved transparency, and alternative mechanisms like non-voting depository receipts.
With FTSE Russell’s recent positive recognition of Vietnam’s stock market improvements, the emerging market upgrade is, hopefully, on track for September 2025. The market is awaiting this and other good news to restore investors’ confidence.
Proposed Amendments to the 2019 Securities Law
In response to issues revealed by the Van Thinh Phat, FLC Group, and Tan Hoang Minh cases, the SSC has been working on draft amendments to the 2019 Securities Law. These amendments are tentatively scheduled for debate and discussion in the National Assembly in late October this year. The amendments fall into three buckets: disclosure requirements, liability of advisors, and regulation of private placements.[12]
First, beginning in January 2025, all listed companies will be required to provide disclosures in both English and Vietnamese. Currently, all disclosures are only in Vietnamese.
Second, any advisors involved in preparing prospectus and other registration documents will be required to exercise greater diligence and may face increased civil and criminal liability for false statements or omissions. For example, the proposed amendments place obligations on auditors with respect to the accuracy and reasonableness of all audited matters.
Third, private placements will be given greater scrutiny. Unlike public offerings, private placements are not subject to prospectus requirements or other registration documents with the SSC. Under current regulations, only professional securities investors (PSIs) (or “accredited investors”) are permitted to purchase securities under private placements, which are subject to a lock-up period. It is also worth noting that only institutional PSIs are permitted to buy and trade privately placed and unregistered bonds, while individual PSIs are not permitted to buy and trade such bonds. Under the proposed amendments, the lock-up period for PSIs will be extended from the current one year to three years. Moreover, any foreign investor, regardless of business type, capital, or operating history, will qualify as a PSI.
The first two categories of amendments are generally viewed positively, as they aim to ensure that investors have access to accurate, timely information and enhance disclosure quality. The proposal to classify all foreign investors as PSIs is also well received. However, the proposal to extend the lock up has attracted criticism because it makes privately placed securities less attractive to investors, except for strategic investors, sovereign funds, or long only funds that could hold securities long-term. It would also prevent many financial investors and funds—not typically mandated to invest in long-term locked-up securities—from investing in Vietnam.
The purpose of a lock-up period in private placements is to restrict the resale of securities for a specified period. This prevents early investors from selling large quantities of securities immediately after the placement, which could cause excessive price volatility due to a rapid influx of shares into the public market. In addition, regulators are likely concerned that without a lock-up period, companies could issue securities through private placements to initial purchasers who may then redistribute them to retail and other investors, effectively turning them into public offerings without the required prospectus and registration documents with the SSC.
Lock-up periods are a key structuring issue in most ECM deals in Vietnam, and the market has developed alternative structures to address this restriction. Common strategies include the sale of treasury shares and secondary shares by existing shareholders, followed by a top-up placement to the selling shareholders. In these cases, the lock-up applies to the selling shareholders, while the funds go to the company, and investors are not subject to the lock-up. However, even with a one-year lock-up, these structures can be difficult to execute. If the proposed amendments are approved, executing these deals will become even more challenging.
Conclusions
There is optimism in Vietnam that FTSE Russell will upgrade the market from frontier to emerging market status next September. Additionally, the market is anticipating other positive developments to restore investors’ confidence. However, the proposed amendments to the 2019 Securities Law have been met with mixed reactions. The SSC appears to prioritize systemic risk management and retail investor protection, while the market desires a stronger focus on recovery and development. Proposals like extending the lock-in period to three years are viewed as counterproductive to market recovery and growth. Over-regulating during a market downturn is unlikely to help. Instead, policies should encourage investor engagement. Measures like relaxing FOL, allowing high-quality securities—such as those of FDI companies—to list and conduct IPO, and shortening regulatory approval timelines would support these goals. A gradual transition from a merit-based system to a disclosure-based one should also be encouraged, as there are alternative ways to manage systemic risks and protect retail investors without excessive regulation. In this regard, enforcement is crucial, with clear communication from the SSC and other regulators that they will continue to monitor market developments and penalize violations. This approach will ensure that market participants adhere to laws and regulations without need for reactive legislation driven by public outcry.
[1] Mirae Asset Securities, Vietnam Strategy Report for the Half Year of 2024, July 8, 2024, page 7.
[2] Ha Thanh, Fourth Cut in Operating Interest Rates: A Boost to Accelerate Growth Recovery, June 19, 2023, sbv.gov.vn/webcenter/portal/vi/menu/trangchu/ttsk/ttsk_chitiet?leftWidth=20%25&showFooter=false&showHeader=false&dDocName=SBV570235&rightWidth=0%25¢erWidth=80%25&_afrLoop=3826616279786755, last access on October 7, 2024; FiinGroup, Macroeconomic and Stock Market Outlook for 2024, November 22, 2023, page 22.
[3] SBB Securities, Analysis Report: KRX System and the Journey to Stock Market Upgrade, April 26, 2024, page 1; Tue Lam, VnDirect Forecasts FTSE and MSCI Upgrades for Vietnam’s Stock Market in 2025 and 2026, VnEconomy, September 24, 2024, https://vneconomy.vn/vndirect-du-bao-ftse-va-msci-se-nang-hang-chung-khoan-viet-nam-lan-luot-vao-nam-2025-va-2026.htm, last access on October 7, 2024.
[4] As of 2022, the stock market capitalization as a percentage of GDP for ASEAN countries varies significantly, but for Singapore, Thailand and Malaysia range from 94%-124% of GDP. At its peak in 2021, the stock market capitalization in Vietnam reached 148% of GDP. See SSI, Prospects for Upgrading Vietnam’s Stock Market: Striving Towards the Goal, page 2.
[5] Corporate bonds issued in Vietnam currently account for only 10-11% of GDP, whereas the average in other Southeast Asian countries currently ranges from 25%-50% of GDP. See Hoang Lan, Bonds of Manufacturing and Trading Enterprises Nearly Vanish from the Market, VnEconomy, July 16, 2024, https://vneconomy.vn/trai-phieu-doanh-nghiep-san-xuat-va-kinh-doanh-gan-bien-mat-tren-thi-truong.htm#:~:text=Quy%20m%C3%B4%20th%E1%BB%8B%20tr%C6%B0%E1%BB%9Dng%20tr%C3%A1i,Nam%20v%E1%BA%ABn%20c%C3%B2n%20kh%C3%A1%20nh%E1%BB%8F.&text=Trong%20qu%C3%BD%202%2F2024%2C%20gi%C3%A1,so%20v%E1%BB%9Bi%20c%C3%B9ng%20k%E1%BB%B3%202023, last access on October 7, 2024.
[6] Kieu Trang, Dragon Capital Chairman: Foreign Investors Net Sold $4 Billion Due to Lack of Market Upgrade and New Attractive Factors in Vietnam, VnEconomy, July 19, 2024, https://vneconomy.vn/chu-tich-dragon-capital-khoi-ngoai-ban-rong-4-ty-usd-co-phan-do-viet-nam-chua-duoc-nang-hang-khong-co-yeu-to-moi-hap-dan.htm, last access on October 7, 2024.
[7] SSC, Average Transaction Volume as of August 2024, September 17, 2024, https://ssc.gov.vn/webcenter/portal/ubck/pages_r/m/thngtinthtrng/thngkthtrng, last access on October 7, 2024.
[8] Kieu Linh, Arrest of Mr. Trinh Van Quyet: Is the Stock Market in Shock?, VnEconomy, March 30, 2023, https://vneconomy.vn/bat-ong-trinh-van-quyet-thi-truong-chung-khoan-co-soc.htm, last access on October 7, 2024.
[9] Ministry of Finance, Report on Assessment of Impact of the Policy in the Proposal to Draft Law Amending and Supplementing a Number of Articles in the Laws under the Management of the Ministry of Finance to Promote Growth, Control Inflation and Stabilize the Macro Economy, August 20, 2024, https://chinhphu.vn/du-thao-vbqppl/ho-so-de-nghi-xay-dung-du-an-luat-sua-doi-bo-sung-mot-so-dieu-cua-luat-chung-khoan-luat-ke-toan-6824, last access on October 7, 2024.
[10] Decree No. 153/2020/ND-CP (Government, December 31, 2020) Regulating the Private Placement and Trading of Private Placement Corporate Bonds in Domestic Market and Offering of Corporate Bonds in International Market, as amended by Decree No. 65/2022/ND-CP (Government, September 16, 2022) and Decree 08/2023/ND-CP (Government, March 5, 2023), Articles 12.2(a), 12.3(a), and 13.1(b).
[11] FTSE Russell, FTSE Equity Country Classification September 2023 Annual Announcement, September 28, 2023.
[12] Details can be found in the fifth draft of Law Amending and Supplementing a Number of Articles of the Securities Law; Accounting Law; Independent Auditing Law; State Budget Law; Law On Management and Use of Public Assets; Tax Administration Law; and National Reserve Law, as issued by the Ministry of Finance on October 2, 2025.
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