Enhancing the financial sector as a crucial source of capital investment

Enhancing the financial sector as a crucial source of capital investment

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In an effort to stimulate growth in the fund management industry and attract more retail investors, the government is considering tax incentives for newly listed companies. This move is part of a broader strategy to increase retail participation in professional investment products, particularly open-end funds, and promote sustainable growth.

The strategies aim to address several hurdles facing the fund market in Vietnam, including financial illiteracy, fragmented distribution, limited product options, and trust deficits.

One key strategy is enhancing investor confidence through greater transparency, fairness, and professionalism in fund management and regulatory oversight. This initiative aims to build long-term trust, moving retail investors away from speculative short-term trading towards more stable, professionally managed investments.

Another important strategy is leveraging the expertise of professional fund managers to not only manage assets effectively but also to improve financial literacy among retail investors, helping them understand risks and benefits better.

Expanding distribution channels is also a focus, with a particular emphasis on allowing commercial banks to distribute open-end funds and other investment products. This requires amending laws, such as the Credit Institutions Law, and establishing certification for bank staff to provide professional and standardized investment advice.

Developing a diversified range of fund products is also crucial, as it will better meet retail investors' needs and preferences, increasing their choices and engagement with open-end funds.

To attract international expertise and capital, the government is considering encouraging greater participation of foreign investors and easing licensing hurdles. This could contribute to the development of effective products and market modernization.

Supporting structural reforms and regulatory upgrades in the stock market is another important strategy, as it will enable a more mature and institutionally appealing environment that indirectly benefits the fund management sector.

Despite these efforts, institutional investors, including professional funds, account for only about 11% of total market transactions. To address this issue, it is crucial to accelerate the IPO process and equitisation of state-owned enterprises, and enhance governance capabilities post-equitisation.

As of the end of December 2024, retail investors in Vietnam had amassed over 9.2 million accounts. The average transaction value for retail investors increased by 22.7% to VNĐ18.7 trillion (US$713.2 million) per session.

By the end of 2024, Vietnam had 43 active fund management companies managing a total of approximately $25.6 billion in assets. However, the investment portfolios of funds in Vietnam lack diversification and include few sustainable growth companies across fundamental sectors, with banking stocks comprising over 35% of the VN-Index.

The slow pace of state-owned enterprise equitisation and lack of new listings from large private corporations exacerbate the limited supply of quality stocks. To change this, the fund management industry must leverage the expertise of investment professionals, not only in asset management but also in enhancing financial literacy within the community.

The lengthy procedures for public bond issuance and listing often deter companies from pursuing these options, and solutions to eliminate these bottlenecks are necessary to create a supply for bond funds. Given the absence of listed corporate bonds, open-end funds can only invest a maximum of 10% of their assets in privately placed corporate bonds, limiting the growth potential of bond funds.

International banks derive more than 40% of their total service fees from asset management, while Vietnamese banks do not. Nguyen Thi Ha Ngah, General Director of Vietcombank Fund Management Company Limited, emphasized the need for comprehensive and breakthrough solutions to realize the potential of the fund industry.

VinaCapital proposed amending the Credit Institutions Law to permit commercial banks to distribute financial products, including open-end funds, and developing certification processes for bank staff to distribute investment products after obtaining professional certifications. These measures would enhance investment fund coverage and standardize and professionalize investment advisory teams.

As the stock market in Vietnam approaches its upgrade goal, the fund industry stands before substantial opportunities. However, the participation rate of retail investors in professional investment products, such as open-end funds, remains low. Only about 423,000 retail investors hold open-end fund certificates in Vietnam.

The economy is entering a phase of accelerated development, marked by an increasing demand for capital to support infrastructure and business production. Strengthening investor confidence is vital, from transparency to actual effectiveness, especially in the case of long-term investment confidence through professional organisations such as open-end funds. The domestic stock market in Vietnam faces a severe shortage of quality goods, including listed stocks and corporate bonds.

In conclusion, the strategies outlined aim to promote sustainable growth of retail participation in professionally managed funds, especially open-end funds, in Vietnam. By addressing the hurdles facing the fund market, the government and industry players hope to create a more vibrant and dynamic investment landscape in the country.

1. The government is contemplating tax incentives for newly listed companies as part of a broader strategy to stimulate growth in the fund management industry and attract retail investors, with the aim of promoting sustainable growth.
2. One of the key strategies is enhancing investor confidence through greater transparency, fairness, and professionalism in fund management and regulatory oversight, in an effort to build long-term trust and move retail investors away from speculative short-term trading.
3. Another important strategy is leveraging the expertise of professional fund managers to not only manage assets effectively but also to improve financial literacy among retail investors, helping them understand risks and benefits better.
4. The government is also considering encouraging greater participation of foreign investors and easing licensing hurdles to attract international expertise and capital, which could contribute to the development of effective products and market modernization.
5. Supporting structural reforms and regulatory upgrades in the stock market is another important strategy, as it will enable a more mature and institutionally appealing environment that indirectly benefits the fund management sector, increasing the supply of quality stocks and corporate bonds.

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