FOREIGN INVESTMENT IN THE SECURITIES SECTOR IN VIETNAM

July 22, 2025 | Guidelines, Setting up a company in Vietnam

In the context of deep international economic integration and stable growth, Vietnam has established itself as an attractive investment destination for the international investor community. The Vietnamese securities market, although relatively nascent, has been progressively affirming its role as an effective capital mobilization channel for the economy and a source of potential returns for investors. The increasing interest from foreign investors reflects their confidence in the long-term development potential of Vietnam's economy

I. Overview of the Vietnamese Stock Market

The Vietnamese securities market was established in 2000 with the founding of the Ho Chi Minh City Securities Trading Center (now the Ho Chi Minh Stock Exchange - HOSE). The market subsequently expanded with the establishment of the Hanoi Stock Exchange (HNX) in 2005 and the Unlisted Public Company Market (UPCoM) in 2009. A significant milestone was the establishment of the Vietnam Exchange (VNX) in 2020, based on the consolidation of the stock exchanges, demonstrating an effort to restructure for the purpose of enhancing market efficiency, uniformity, and synchronicity.

Currently, the market structure is clearly demarcated:

HOSE: Focuses on the listing of stocks from large-capitalization enterprises.
HNX: Serves as the listing venue for small and medium-sized enterprises and is also the market for bond trading.
UPCoM: Provides an organized trading platform for public companies that are not yet eligible for or listed on HOSE and HNX.

In addition to the equities market, the development of more complex financial products, such as derivatives and covered warrants, has provided investors with effective instruments for risk hedging and management.

II. Opportunities for Foreign Investors

For foreign investors, the Vietnamese securities market presents numerous attractive opportunities stemming from socio-economic factors and the market's intrinsic characteristics. Rapid urbanization, a growing middle class, and the Government's commitment to upgrading the market's status from Frontier to Emerging Market are primary growth drivers. Furthermore, the market's valuation multiples (as reflected in P/E and P/B ratios) are often more attractive compared to many other markets in the region, creating an appeal for long-term investment funds. The market upgrade initiative is expected to attract additional capital flows from index-tracking funds, thereby improving liquidity and enhancing overall market appeal.

Sectors with significant potential include:

Banking: Benefiting from stable credit growth and a strong digital transformation process.
Real Estate: Driven by growing housing demand and the pace of urbanization.
Consumer Goods and Retail: Developing in tandem with the expansion of the middle class.
Information Technology, Renewable Energy, and Logistics: These sectors are beneficiaries of global trends and preferential government policies.

III. Legal Framework and Investment Procedures

The legal framework governing the securities investment activities of foreign investors in Vietnam is continuously being refined to ensure transparency and fairness. The two foundational legal documents are the Law on Investment 2020 and the Law on Securities 2019, supplemented by guiding instruments such as Decree No. 155/2020/ND-CP and Circular No. 120/2020/TT-BTC. Pursuant to these regulations, foreign investors are subject to the principle of national treatment, with exceptions for certain conditional business lines and sectors.

Regarding ownership limits, foreign investors may hold up to 100% of the charter capital of a public company, unless such company operates in a restricted sector. For sensitive sectors such as banking or telecommunications, foreign ownership is typically subject to a lower threshold.

The investment procedure comprises the following principal steps:

1. Registration of a Securities Trading Code: It is mandatory for foreign investors to register for a securities trading code with the Vietnam Securities Depository (VSD) through a depository member.
2. Opening of an Indirect Investment Capital Account (IICA): Subsequent to obtaining a trading code, the investor must open an IICA at a licensed commercial bank in Vietnam. All transactions related to the investment (e.g., capital injection, securities trading, receipt of dividends, repatriation of profits) must be conducted through this account. This regulation is designed to enable state authorities to monitor capital flows, prevent money laundering, and ensure transparency.
3. Trading and Settlement: Trading activities on the exchange must comply with regulations on order matching, ownership ratios, and information disclosure. The current settlement cycle is T+2, meaning that funds or securities will be credited to the investor's account two (02) business days following the successful transaction date.
4. Repatriation of Profits: The procedure for repatriating profits or principal capital abroad requires the investor to provide evidence of the legal origin of the funds and to have fulfilled all relevant tax obligations (e.g., personal income tax or corporate income tax).

IV. Risks and Challenges to Consider

In addition to the opportunities, foreign investors must identify and prudently assess the potential risks inherent in the Vietnamese securities market.

Legal and Policy Risks: Changes in the legal and regulatory landscape may impact the rights and interests of investors, particularly regulations concerning foreign ownership limits.
Liquidity Risk: The liquidity of certain stocks, especially within the small-capitalization segment, remains low. This can lead to significant price volatility when executing large-volume trades.
Foreign Exchange Risk: Profits denominated in Vietnamese Dong (VND) may be adversely affected by fluctuations in the exchange rate upon conversion to a foreign currency.
Transparency and Infrastructure Challenges: Despite improvements, issues related to corporate information transparency and limitations in the market's technical infrastructure persist as challenges to be addressed.

V. Conclusion and Recommendations

In summary, the Vietnamese securities market stands as a potential investment destination, underpinned by stable macroeconomic growth, increasingly open policies, and attractive valuations. However, investors must contend with inherent risks related to the legal framework, liquidity, foreign exchange, and information transparency.

To optimize investment performance and manage risks, foreign investors should adopt a prudent investment strategy, which includes:

Conducting in-depth research and analysis of target enterprises and sectors.
Constructing a diversified investment portfolio to mitigate risk.
Seeking counsel from financial and legal professionals with expertise in the local market.
Prioritizing a long-term investment horizon rather than pursuing short-term market fluctuations.

With a strategic and cautious approach, the Vietnamese securities market can offer sustainable return opportunities for international investors.

The information contained in this article is general and intended only to provide information on legal regulations. DB Legal will not be responsible for any use or application of this information for any business purpose. For in-depth advice on specific cases, please contact us.

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