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[K-Financiers] ‘Vietnam’s rising middle class will drive growth of capital market’
NH Securities Vietnam CEO sees potential in rapid urbanization, aspiration for capital gainsBy Im Eun-byel
Published : March 27, 2023 - 16:14
This is the fourth installment of a series of interviews on chiefs who run overseas units of Korean asset management, banking and securities companies, examining their key strategies for global expansion. -- Ed.
Though Vietnam’s financial market has not yet matured, when it does, it will come out in full bloom, said Kim Jong-seok, CEO of NH Securities Vietnam, the Vietnamese arm of Seoul-based NH Investment & Securities.
Over the past few years, Vietnam’s economy has been outpacing other emerging ASEAN nations. Their exceptional economic growth will lead to the rise of the middle class, paving the way for the development of local capital market, Kim said during an online interview held with The Korea Herald.
“Vietnam’s middle class refers to the population living in Hanoi and Ho Chi Minh,” Kim said. Hanoi and Ho Chi Minh are the two largest cities in Vietnam.
While Vietnam’s average gross domestic product per person -- a major indicator of growth -- was $3,756.49 in 2021, the same measure for those living in Hanoi and Ho Chi Minh was about $8,000 a year, Kim explained.
“Usually when the average GDP per person surpasses the $10,000 mark, people start to take an interest in investments, including securities,” Kim said. “The stock market started to grow in the late 1980s and the early 1990s in Korea," he added, noting that the cities of Vietnam are now approaching a similar point.
Kim sees potential in Vietnam, which has a relatively low urbanization rate. The urbanization rate in Korea stands at about 90 percent, compared to just 37 percent in Vietnam.
“While (currently) only about 30 million are living in cities, more growth is to come as urbanization leads to income growth,” Kim said.
Potential also lies in the low number of stock investment accounts held by the public.
“About 6 percent of the total population own an equity account. This means that there are still 94 percent (of the population) who are potential customers for us,” he said.
The Vietnamese government also shares the vision to see an increase in the number of middle income families. Vietnam has set the goal of an average income per capita of $7,500 by 2030.
Though the demographic data signals growth for the near future, there are still some limits on the financial market as regulations are still quite “conservative,” Kim pointed out.
“The market is heavily regulated by the government which is very concerned of a potential financial crisis,” Kim said. “The government prioritizes stability over growth for the financial market.”
“From my years of experience here, the Vietnamese government wants to boost the economy, expanding the middle class. But it also is very concerned about the stability and integrity of the capital market,” he explained.
Still, its people are exploring new ways of capital gains, searching for new vehicles of investment.
“A recent survey held by our firm showed though 20 percent of the respondents do not have experience in stock investments, but they had experience in investing in cryptocurrency,” Kim said.
Vietnam, like South Korea, has not yet legally recognized cryptocurrency as either a currency or an asset. Despite the legal haze, cryptocurrency investment was received with much hype in the country.
“People are interested in capital gains, but as the stock market is tightly controlled, it is not enough to match up to the investment desire. If related regulations are eased, the market will prosper,” Kim said.
One of the most sought-after changes in market regulations is the permission for day trading.
“Day trading, which involves buying and selling shares within the same day, is not allowed in Vietnam yet, limiting transaction frequency and trade volume,” Kim said.
“But if it is allowed, the market will grow explosively,” Kim said. “We are preparing for it. We need to have the capability to adapt to the changed environment when the regulation is lifted, both systematically and capital-wise.”
Despite the rather conservative regulations, Vietnam’s capital market remains strong, led by growth in the manufacturing sector and the potential for the future, Kim said.
“The overall price-to-earnings ratio of listed companies is high. The average P/E stands at 11, a very high figure for a country listed on the Frontier Market,” Kim said, referring to the Morgan Stanley Capital International listing.
On the MSCI indices, Vietnam is listed in the Frontier Market Index. It is the largest player on the list, taking up 26.6 percent of the market share.
“The stock prices are relatively high compared to economic development. It is because Vietnam will grow and develop, no matter what. Investors put in long-term funds regardless of the MSCI status and wait. The valuation is okay and risk is low,” Kim said.
"Vietnam is a country with an economy bound to grow. In the meantime, we will do what we can, waiting for the right time to come," Kim added.
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