NATIONAL ECONOMICS UNIVERSITY

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ASSIGNMENT: INTERNATIONAL FINANCE

Topic: Portfolio Investment of Vietnam (2010-2020)

Member: Đào Thu Trang (L)

Lưu Thị Phương Anh
Cao Tuấn Anh
Nguyễn Hiếu Dương
Đặng Ngọc Thanh Hương
Phan Thanh Hà
Bùi Quang Hiển
Lương Nhật Minh
Nguyễn Phương Thảo
Group: 4
Class: Corporate Finance 63

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 TABLE OF CONTENT

I. Definition of FPI captial flow..........................................................................................3

II. Status of Vietnam’s Portfolio Investment.........................................................................3
1. FPI inflow into Vietnam.........................................................................................................3
1.1. Stages of FPI inflows into Vietnam from 2010 to 2020....................................................................3
1.2. Attracting the FPI on the stock market............................................................................................5
1.2.1. Amount of FPI capital...................................................................................................................5
1.2.2. Number of foreign investors on stock market.............................................................................7
1.2.3. Number of foreign investment funds on the stock market..........................................................8

2. FPI outflow of Vietnam..........................................................................................................9

2.1. Laws on outward portfolio investment.............................................................................................9
2.2. Effects of the laws to Vietnam’s portfolio investment activities......................................................9

III. Assessments of the FPI capital flow.............................................................................9

1. Achievements..........................................................................................................................9
2. Limitations............................................................................................................................11
IV. Solutions to manage and promote the FPI capital flow of Vietnam............................12

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 I. Definition of FPI captial flow
 Definition: In Vietnam, according to Article 3, Law on Investment 2005:
“Indirect investment is a form of investment through the purchase of shares,
stocks, bonds, other valuable papers; through securities investment funds and
through other intermediary financial institutions where investors are not
directly involved in the management of investment activities”.
 Along with foreign direct investment (FDI), foreign indirect investment (FII)
also has a special feature that is greatly affected by the shift of cheap capital
flows. Recently, when the US Federal Reserve (Fed) raised interest rates,
cheap capital flows began to stop in developing countries and tended to
reverse to developing countries. Recently, the Global Financial Industry
Association issued a warning about China and more than 20 other emerging
markets experiencing the most severe wave of capital outflows in seven years.
 Going against the trend, also in a developing economy, Vietnam still attracts
indirect investment flows on the stock market.

II. Status of Vietnam’s Portfolio Investment

1. FPI inflow into Vietnam
1.1. Stages of FPI inflows into Vietnam from 2010 to 2020

Data source: World Bank

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 From 2010 to 2020, FPI capital flow into Vietnam has increased and decreased erratically
and is not considered as an effective capital mobilization channel for the economy
because of the continuous fluctuations of this capital flow. The FPI capital flow into
Vietnam from 2010 to now can be divided into 3 periods as follows:

 Phase 1 (2010-2013): recovering from the global economic crisis.

This capital flow showed signs of recovery, but it was still slow. In May
2013, for the first time, the US Federal Reserve (FED) announced plans to
shrink the QE3 quantitative easing package, FPI capital flows were
negatively affected. Massive withdrawal of capital from investors caused
the amount of FPI capital into emerging markets to decrease to only USD
76 billion in 2013 (-37% compared to 2012).

Taking into account both FDI and FPI, the amount of investment capital in
2013 in emerging markets reached about 693 billion USD (down 5.6%
compared to 2012). For the frontier market, the amount of investment
capital did not change much compared to 2013, reaching 116 billion USD,
which shows that the shock from the QE3 package contraction has hurt
emerging markets more than others marginal field.

 Phase 2 (2014-2015): FPI in this period is very dismal.

In 2014-2015, FPI capital flow decreased due to the impact of the oil price
crisis and strong fluctuations in the Chinese stock market. The level of net
FPI capital attracted to Vietnam in 2014 was just nearly million USD.

Data source: The State Bank of Vietnam

 Phase 3 (2016 -2020): strong recovery of FPI

During this period, the economists forecast, foreign investment flows
would begin to recover in the second half of 2020 when economies began
to reopen, social distancing orders were eased. However, foreign capital
inflows into emerging markets (except China) remained negative in 2020.
In addition, the recovery will be slow because the economic growth in this
regions was also negatively affected by the pandemic. In Vietnam, foreign
investors had been net sold for 14 consecutive weeks, with a value of over
VND 17,000 billion, the most in the 20-year history of the stock market.

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 Data source: CEICDATA
1.2. Attracting the FPI on the stock market
1.2.1. Amount of FPI capital
a) FPI on the bond market

The government bond market is an attractive channel for foreign investors. In general, the
size of bond transactions of foreign investors tends to increase sharply in volume, but the
proportion in total market transactions is slightly reduced.
In recent years, foreign investors have increasingly participated in the corporate bond
market. The largest bond-issuing industry is real estate (accounting for 30% of the value
of corporate bonds issued in 2020), followed by banking (accounting for 30%), energy
(8%), manufacturing (6%), the rest are other industries. However, in the corporate bond
market, foreign investors only accounted for 3.1% of the total value of bonds issued in
2019 and 1.2% in 2020.

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 Compared with some markets in Southeast Asia, the size of Vietnam's corporate bond
market in GDP by the end of 2020 surpasses the Philippines and Indonesia but is much
lower than that of Thailand and Malaysia. In fact, although the size of the corporate bond
market in Vietnam is already relatively large in relation to GDP, the Vietnamese
corporate bond market is still in a new stage of development when the primary market is
specialized in not yet formed, the issuers and their bonds have not been independently
rated. Most bonds are still in the form of private placement, the largest bond buyers are
banks, and the role of foreign investors and other investment financial institutions is
absent.
b) FPI on the stock market

The size of share capital of foreign investors on the stock market has always remained at
a high level of net buying and is done mainly on the secondary trading market, shown in
both aspects as follows: trading volume and value transaction. FPI in Vietnam's stock
market also increased and decreased in the period 2007-2009; 2010-2016; 2017-2020
with erratic fluctuations in trading value and a huge difference between listed shares and
registered shares.
Foreign investors have poured around USD 36.4 billion into the Vietnamese stock market
by the end of 2019, a rise of 11.6 percent from a year earlier, according to the State
Securities Commission (SSC)

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 During the year, they net bought over VND 7.51 trillion (USD 323 million) worth of
stocks and fund certificates, and more than VND 13.73 trillion (USD 591.5 million)
worth of bonds.
The benchmark VN - Index on the Ho Chi Minh Stock Exchange (HoSE) finished 2019
at 960.99 points, up 7.7 percent from the previous year, the highest growth recorded in
the Southeast Asian region.
With 1,622 listed shares and fund certificates on HoSE and the Hanoi Stock Exchange,
the scale of the stock market reached nearly VND 1,402 trillion (USD 60.36 billion),
picking up 16 percent as compared to the end of 2018.
The stock market capitalisation increased 10.7 percent against 2018 to reach over VND
4,384 trillion (USD 188.73 billion). The value was equivalent to 79.2 percent of the
country’s gross domestic product (GDP) in 2018, and 72.6 percent of the GDP in 2019.
Foreign trading activities are forecast to increase this year thanks to many supporting
factors, especially exchange-traded funds (ETFs), according to Viet Dragon Securities
Company (VDSC). The stock market is forecast to boom in the near future as foreigners
are now able to invest more in their preferred stocks, thus luring foreign capital inflows
into the Vietnamese market.
1.2.2. Number of foreign investors on stock market

Since the introduction of the Securities Law, the scale of the number of foreign investors
has also increased rapidly. In the two years 2006-2007 when the Vietnamese stock
market was in the early stages of operation, the number of trading accounts of foreign
investors skyrocketed, from 436 accounts in 2005 to 2100 accounts in 2006. reached
8441 accounts in 2007 and 35,071 accounts in 2020.
According to the account structure of foreign investors, it can be seen that the majority of
accounts belong to individual accounts. Accounts of foreign investment institutions are
not many, specifically in 2015, there were 2656 accounts belonging to foreign investment
institutions, accounting for 14.8% of total accounts of foreign investors; in 2017
increased to 2865 accounts, accounting for 12.7% of the total accounts of foreign
investors and in 2020 reached 3937 institutional accounts, accounting for 11.2% of the
total accounts of foreign investors.
- Regarding the transaction size of foreign investors on the stock market: In the past 10
years, transactions of foreign investors on the stock market Vietnamese securities were
mainly net buyers with a small scale compared to the total trading volume of the entire
market. Transaction value of foreign investors in 2007 accounted for about 31.53% of the
total market transaction value, but during the past 10 years (2007-2017) the proportion of
transaction value of foreign investors did not improve and stopped at 18% in 2017.
- Transaction structure of foreign investors on the stock market: On the stock market,
investors' transactions usually take place in three forms: stocks, bonds, and fund

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 certificates. In 2017, at HOSE stock exchange, The proportion of securities trading
volume of foreign investors is as follows:
 Buying shares accounted for 7.38%, selling stocks accounted for 6.78%; Buy-in
fund certificates 75.07%, fund certificates sold account for 11.57%; Purchased
bonds accounted for 3.43%, bonds sales accounted for 2.24%.
- Proportion of securities trading value in 2017 on HOSE the ratio is as follows:
 Buying shares accounted for 16.03%, selling shares accounted for 13.68%; Proof
only buying funds accounted for 75.98%, selling fund certificates accounted for
10.90%; Purchased bonds accounted for 3.48%, sold bonds accounted for 2.24%.

1.2.3. Number of foreign investment funds on the stock market

According to data from Morningstar and Investment Company Institute, the "resurgence"
of ETFs caused the size of total assets of ETFs under management globally to increase
sharply with an increase of nearly 400% to $ 11.4 trillion in the past year. last time. ETFs
are often seen as cheaper and effective alternatives to other investment funds in times of
high market volatility. With the trend of investing in ETFs blooming globally in recent
years, Vietnam is no exception to this trend.

Data source: MBS

The number of ETFs in Vietnam, including foreign ETFs and domestic ETFs, has
increased significantly over the past 10 years. FTSE Vietnam ETF and VNM ETF are the
first two foreign ETFs to invest in the Vietnamese stock market with initial asset values of

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 $5.1 million and $14 million, respectively. So far, as of November 2020, the total current
assets of these funds are $273 million and $418 million, respectively.
2. FPI outflow of Vietnam
2.1. Laws on outward portfolio investment

 Circular No. 105/2016/TT-BTC applies to securities trading companies, investment

funds, insurance businesses and agencies, organizations and individuals related to
outward portfolio investments.

 And we want to give the Safe Investment Rate that the State Bank of Vietnam regulates:
- Securities Company:
Only securities companies licensed to conduct stocks and bonds trading may invest or
entrust outward portfolio investments. Their investment must not exceed the registered
trading limit certified by the State Bank of Vietnam. In case an outward portfolio
investment is incurred, the total investment will not exceed thirty percent (30%) of
equity
- Securities investment funds, companies:
They are allowed to invest up to twenty percent (20%) of the net asset value at the latest
investment activity report and not exceed the trading limit confirmed by the State Bank of
Vietnam.

- Insurance business:
In every case, the total amount of the outward portfolio investment does not exceed the
value determined by equity minus the larger amount between the legal capital and the
minimum solvency margin, and amount directly invested abroad.

2.2. Effects of the laws to Vietnam’s portfolio investment activities

- For investment enterprises: The source of capital is constantly rotating, contributing to
profits from the investment, capital is not passive in place, enterprises can actively
research the market and place of investment, have a good understanding of the market.
the market and the development ability of the business and the country receiving the
investment to have appropriate investment policies for the next time.
- For enterprises and investment recipient countries: Having capital from abroad to develop
the inherent potential of enterprises and countries, no cost when borrowing capital from
various sources, the financial system is promoting development, stimulate changes in
national laws and policies to match the attraction of foreign investment.

III. Assessments of the FPI capital flow

1. Achievements
- Firstly, the process of equitization of state-owned enterprises in Vietnam is creating
favorable conditions for foreign investors to participate in buying shares and contributing
capital to enterprises.

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 Data source: State Securities Commision of Vietnam
- If in 2010, the investment portfolio value of foreign investors on the Vietnam stock market only
reached 6,500 million USD, in 2017 it reached 32,900 million USD, increasing 5 times compared
to 2010, 4 times higher. 7 times compared to 2011 and increased by more than 91% compared to
2016. The stock market and the financial market of Vietnam are getting stronger and better than
FII capital.
- Secondly, loosen regulations on transactions on investors' capital accounts, regulations on
remittances of profits and investors' income abroad (free of charge), tax on repatriation of
profits), there are looser regulations on capital contribution rates for foreign investors;
there are clearer regulations on tax for foreign investors, allowing foreign investors not to
establish 100% foreign-owned fund management companies.... Foreign exchange
management mechanism of Vietnam is also becoming more and more perfect, in line
with the actual situation in the country and international practices, contributing to better
control and management of foreign capital flows to Vietnam to limit the negative
instability that may cause from this capital.
- Comparing 2 periods, it can be seen that foreign capital has made an important
contribution to socio-economic development over the past 20 years, creating favorable
conditions for relatively high and continuous economic growth through expanding
domestic investment with lower capital costs; expand competition in the market; access
to modern technology, advanced management knowledge; increasing liquidity for the
market, dong also promoted extensive and strong operation of stock markets.

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 2. Limitations
- Firstly, the amount of FPI capital is still low compared to other investment activities such
as FDI. According to a report of the Foreign Investment Agency (Ministry of Planning
and Investment), in the first 5 months of 2020, both channels of attracting capital from
Vietnam have had positive signals. In which, direct investment capital (FDI) reached 7.44
billion USD, up 15.2% in registered capital over the same period in 2019. While indirect
investment capital (FII) through capital contribution, purchase shares increased by 11.6%
over the same period, the total value of contributed capital was 2.99 billion USD,
equaling 39.1% over the same period.

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 - Secondly, legal documents related to FPI are still limited and contradictory need
disassembly.
- Thirdly, lack of transparency in information disclosure and stock market supervision
securities. The ability to access information sources about Vietnam's stock market for
foreign investors still faces many challenges. The source of official information
disclosure about Vietnam stock market to foreign investors is still very lacking.
- Moreover, the work of stock market statistics and forecasting, forecasting the amount of
FPI capital entering and leaving on the stock market is still limited, incomplete.
- Vietnam's economy in the period 2007-2020 still has many uncertainties and impacts
large to FPI capital flow into Vietnam.
- According to the State Securities Commission, over the past time, there has been a
phenomenon of several organizations and individuals claiming to be international
securities companies or representing international stock exchanges or organizing their
own international stock exchanges. (BE Exchange, DK-Trade, FTXtrade.com, LCM,
Multibank..., calling and inviting investors to open accounts, deposit money into e-
wallets, invest in stock indices, international securities derivative contracts on stock
exchanges that are not organized and operated by the Stock Exchange of Vietnam and its
subsidiaries. The popular form of calling for investment is through social networks and
directly by phone, texting, these objects guide investors to open accounts, deposit money
and perform transactions through websites and applications. organized and operated by
these entities (MT4, MT5, Trading view...). According to information from the
investigating police agencies and the investor's complaint, some objects have interfered
with the price of securities codes through the application operated by these subjects,
leading to investors. investors suffer losses and then take advantage of their investment
money.

IV. Solutions to manage and promote the FPI capital flow of Vietnam.
- Completing and synchronizing the legal system guiding the laws related to indirect
investment and attracting and managing FII capital:
 Vietnam needs to quickly promulgate fully and synchronously guiding documents
for the implementation of the Investment Law, the amended and supplemented
Securities Law, and the Enterprise Law on aspects related to FII.
 From the perspective of the stock market, for FII capital, Vietnam is still in the
position of a frontier market, it is necessary to continue to supplement and
complete the guiding documents of the Investment Law, as well as the related
laws. necessary in attracting and managing FII capital in Vietnam in the coming
time. In addition, Vietnam needs to develop a specific mechanism to manage and
supervise indirect investment capital to ensure the healthy competition and safety
of the financial market in general and the stock market in particular. Vietnam
needs to develop an early warning system and proactively develop appropriate

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 countermeasures to effectively monitor and prevent the risks of negative
fluctuations in the stock market due to speculation, monopolies, manipulation,
lack of information. market information
 The policy of attracting and managing FII capital into the Vietnamese market
must both create favorable conditions for foreign investors to attract more foreign
indirect investment capital and effectively manage this capital to limit adverse
impacts and ensure the safety of the national financial system. Develop necessary
scenarios and prevention plans in case FII capital reverses based on pre-risk
warnings as well as handling measures in the worst case.
- Improve the publicity and transparency of information of the stock market:
 Information disclosure and transparency are considered the most important
principles to develop the market and attract investors, especially FII investors to
invest in the stock market. Vietnam needs to fully legalize information disclosure
activities of the stock market, implement information transparency disciplines
such as: Promulgating a full legal framework on reporting obligations, disclosing
information publicity for public companies, listed companies; promote the
implementation of the method and mechanism of information disclosure
according to the size (capital and number of shareholders) of the company,
promote the performance of reporting obligations, disclose information
periodically, irregularly and on demand for listed companies, registered for
trading and unlisted public companies, registered for trading...
- The stock market also needs more diversity:
 As there are currently only a few types of stocks that dominate the market,
including bank stocks and real estate. While the "taste" of investors also wants
telecommunications, electricity, fertilizer, or even medical stocks. The stock
market also has no investment activity for retirement funds, while it is the
backbone of many global capital markets.
- Regarding the bond market, in addition to government bonds, investors also want to buy
bonds with good liquidity or bonds of listed companies:
 "At this time, it is difficult for foreign indirect investors to access corporate bonds
because these bonds are often not listed," said Vina Capital expert. For corporate
bonds to be listed, a rating process is required. Vietnam can invite reputable rating
agencies such as S&P, Moody's, Fitch to evaluate corporate bonds by combining
financial institutions and commercial banks.
- Build an early warning system to predict the fluctuations of capital inflows and out of the
market:
 Finalize legal documents on prevention, develop early warning system, perfecting
the accounting and auditing system according to international standards.

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  Implement fairness in general regulations for both domestic and foreign investors;
focus on professional investors entering the market as both investors and financial
intermediaries in the market.
 Completing documents related to online support and consulting services, legal
regulations related to responsibilities and quality of information disclosure for
state management agencies and certificate issuers. securities.
 Completing the accounting, auditing, inspection, and supervision system in order
to provide accurate information.

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 CONCLUSION

Attracting foreign indirect investment is an important task of the Vietnamese government to

supplement capital for economic development. With favorable conditions of the economy and
preferential policies for foreign investors, Vietnam in the past years (2007-2020) has relatively
well exploited the potential of FPI flows to serve the purpose of foreign investment.
socioeconomic development goals.
In the process of attracting FPI capital, Vietnam has tried to perfect and make the stock market
transparent, promote the equitization of state-owned enterprises, and perfect the legal system to
attract foreign investors. Although there has been an erratic increase and decrease in some years,
in general, FPI into Vietnam in recent years has been relatively stable, has not been reversed and
does not create great risks to the economy. Increasingly attracting large investors is a success of
Vietnam in the policy of attracting foreign indirect investment capital over the past time.
However, the practice of attracting FPI capital into Vietnam recently also revealed many policy
limitations. The above policy limitations have been demonstrated by the fact that the amount of
FPI capital into Vietnam in the past time has not been commensurate with its potential, and most
of it is small, short-term investment flows, the liquidity of capital is limited. investment is low.
Despite the great efforts and desire to thoroughly solve the problems under the object and scope
of the research, the thesis still has the following limitations: Due to information security
requirements, our group has not yet collected detailed data on attracting and managing FPI
capital flows; Research methods are not diverse, conclusions are mainly based on statistical and
analytical methods. Group 4 looks forward to receiving suggestions from Mrs Luong Thu Hang
to improve the research work. Sincerely thank you!

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 REFERENCE

1. State Bank of Vietnam

2. IMF- International Monetary Fund
3. World Bank
4. State Securities Commission of Vietnam
5. General Statistics Office of Vietnam
6. Ministry of Planning and Investment

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