The Vietnamese stock market which has recently shown positive signs is still unable to set investors’ mind at ease because experts believe it is negatively dominated by large-capitalization stocks besides a non-existent derivative instrument.
Tran Dac Sinh, Director of the Ho Chi Minh City Stock Exchange (HOSE) which announces the country’s benchmark VN-Index, said influences by big stocks on the index is somehow inevitable since it has been built on market capitalization, which is a drawback.
Dozens of such stocks are now listed on the southern bourse and institutional investors have taken advantage of the defect to control the index to some extent, Sinh added.
But he noted that more developed markets have also faced the same problem.
It is anyway beneficial when foreign institutions keep investing in those stocks, he added.
Sinh said it is not adequate to calculate the VN-Index against all the listed stocks, of which a substantial proportion is held by insiders and government stakeholders.
Despite their low liquidity, those stocks do have certain effects on the VN-Index which then may not reflect the market as it is.
Every index has its own weaknesses so HOSE is considering introducing some other indices to more comprehensively reflect the market like the VN-Index 30 or VN-Index 100.
The Vietnamese stock market lacks financial instruments to protect investors, he confessed, revealing HOSE finished preparing a proposal to develop a derivative market three years ago and submitted it to competent agencies for nearly one year but nothing has happened.
It takes time, however, to run such a market since necessary elements like technology, the legal system, and participants’ knowledge are not up to expectations at the moment.
It is said that the Vietnamese stock market is expanding in scale but shrinking in liquidity so the introduction of new services can help improve the situation, Sinh said.
Some such services include margin trading and the opening of multiple accounts by one investor.