Towards a healthy financial market to restore the market s confidence

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The size of the capital market reached 105% of GDP in 2021
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The size of the capital market reached 105% of GDP in 2021

The global and Vietnamese economies have been affected by the Covid-19 pandemic for nearly three years and still face many difficulties and challenges. The world economy, after a strong recovery in 2021, has seen recovery momentum slow in 2022, and is at risk of a partial recession in 2023. Vietnam’s economy is recovering strongly.

The GDP growth for the whole year in 2022 is forecast at about 8% while the average inflation is forecast to increase by about 3.3% (about 4% lower than the target).

According to Deputy Governor of the State Bank of Vietnam (SBV) Pham Thanh Ha, in 2022, the global and Vietnamese economies are much more difficult than forecasted at the end of 2021. At that time, no organization or individual could predict that inflation would increase rapidly, becoming a worldwide trend, reaching the highest level in 40 years in some leading developed countries such as the US, UK, and Europe.

Although the trend of monetary tightening of the US Federal Reserve (FED) has been predicted in advance, the frequency and extent could not be predicted. Market conditions around the world fluctuated wildly, from currencies with the US soaring to a two-decade high, to stocks, bonds and global capital flows. The tight financial context and strong fluctuations in the world financial market have imposed great pressures on exchange rates and interest rates of currencies, especially in small economies with large openness such as Vietnam.

According to the Deputy Governor, in a difficult situation, the accumulated inadequacies of the economy have been revealed through the recent movements of the stock market, corporate bond market and real estate market.

“After more than a decade of building a stable macroeconomic foundation through controlling inflation at a low level, ensuring major balances of the economy, recent fluctuations in markets show that we need to continue to review carefully the reform of markets, especially the stock market, corporate bonds, and real estate. The sustainable development of these markets will support the medium and long-term development dynamics of the economy and firmly consolidate the stable macro foundation that has been established,” said the SBV’s Deputy Governor Pham Thanh Ha.

Deputy Finance Minister Nguyen Duc Chi said that the capital market has gradually become an important medium and long-term capital mobilization channel for businesses, including real estate businesses. The size of the capital market grew 28.5% in the 2016 – 2021 period at an annual average. By the end of November 2022, the size of the capital market reached 105% of GDP in 2021. Of which, the stock market capitalization reached 64% of GDP and the bond market capitalization reached 41% of GDP, including corporate bonds reached 15% of GDP. The scale of capital mobilization through the capital market from 2011 to 2021 reached over VND 5 quadrillion, equivalent to 30% of the total investment capital of the whole society.

In that context, the Ministry of Finance has offered solutions and followed the Party’s guidelines and policies to continue restructuring the economy, reforming the growth model, and improving the competitiveness of the economy, promoting the development of the private economy, focusing on capital market and stock market to raise medium and long-term capital sources for development investment.

Accordingly, the capital and financial markets are becoming more and more complete in structure and scale, playing an important role in mobilizing resources for investment in economic development, contributing to macroeconomic stability and boosting socio-economic development.

Keys to deal with risks

According to many experts, the financial market continues to play an important role in providing capital for the economy. However, this market has risks that will possibly affect its sustainable development in 2023 and beyond.

According to Dr. Can Van Luc, Chief Economist of BIDV, Member of the National Fiscal and Monetary Policy Advisory Council, to increase the liquidity of the corporate bond market and reduce interlinking risks between this market and the monetary market, the Government should have specific and feasible plans and solutions to deal with corporate bond risks.

On the side of the Ministry of Finance and the State Securities Commission, Mr. Can Van Luc suggested that these two agencies soon develop new derivative securities products such as futures contracts on other stock indexes, futures contracts on single shares, options contracts to diversify products, overcome current limitations, and attract domestic and foreign investors.

According to Ms. Vu Thi Chan Phuong, Vice Chairwoman of the State Securities Commission, under the influence of economic-political fluctuations in the world as well as policy adjustment in the country, the Vietnamese stock market has experienced many fluctuations, with a downward trend starting from April, including recovery spans in May, August, late November until now.

In order to improve the legal and institutional framework, the commission is reviewing provisions of the Securities Law and guiding documents in order to immediately overcome inadequacies and obstacles, thereby restoring the market’s confidence.

Regarding supervision and inspection in the market, the State Securities Commission will enhance the role and responsibilities of supervisory lines, in which it is necessary to attach importance to the first line of supervision, which is securities companies must ensure a transparent and efficient operating market.

Financial markets to restructure towards balance, transparency Financial markets to restructure towards balance, transparency

The Commission is also directing stakeholders to prepare a trading platform for private placement corporate bonds to develop a transparent and safe secondary trading market; and restructuring securities companies, and fund management companies according to the scheme approved by the Prime Minister.

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