Strategic Project Needed to Develop Institutional Investors in Stock Market

 

During a nine-year operation period, the Vietnamese stock market has made great strides. Statistics showed that, Vietnam is now home to more than 100 securities companies. The State Securities Commission of Vietnam (SSC) allowed 46 domestic and hundreds of foreign fund management funds to join the local stock market. Besides, most Vietnamese financial institutions such as commercial banks, financial companies and insurance companies have actively participated in the market.

 

However, VAFI General Director Nguyen Hoang Hai, said the number of institutional investors remains modest compared to requirements of the international stock market. Currently, the ratio of daily trading of domestic and foreign investors only account for 15 percent and the rest of the 85 percent are held by individual investors. The ratio is opposite to the stock market in developed countries where institutions make up 80 percent – 85 percent of the total trading value per day. On the other hand, capital for securities business of local institutions remains small against that of foreign ones, which is also opposite to international practices.

 

“Looking at shareholder structure at holding companies, if excluding the stake ratio of state-owned shareholders, domestic individual investors hold up to 70 – 85 percent of companies’ registered capital. This is contrary to international practices, Hai added.

 

According to the VAFI, the Vietnamese stock market has faced three big economic crises. In these situations, the local market saw the most changes in the world although the national economy was not affected as much as other economies. The local stock market is dominated by individual investors, which is completely contrary to the region and the world where institutions dominate.

 

These all showed that institutional investors do not ensure their roles in business administration as well as in the Vietnamese stock market’s sustainable development. Therefore, VAFI said, Vietnam needs to work out a solution to boost the development of institutional investors.

 

VAFI said, at the beginning, SSC should set up a compiling taskforce which includes representatives from SSC, VAFI, securities business associations, and fund management clubs and capital market groups. The members will discuss specific solutions to boost the roles of institutional investors who are expected to boost the Vietnamese stock market’s development in the near future.