Vietnam stock market liquidity forecast to rebound from September

Trading activity on the local bourse has slowed steadily in recent months. The average daily value of matched-order transactions, which previously exceeded VND20 trillion (US$760 million) earlier this year, has dropped below VND15 trillion ($570 million).

Public investment, foreign capital to drive liquidity

Accelerated public investment disbursement and foreign capital inflows are set to serve as the main drivers for domestic liquidity in the final months of the year.

Nguyen Thanh Trung, CEO of financial consulting firm FinSuccess, told Tuoi Tre (Youth) online newspaper that Vietnam still had considerable room to support stock market liquidity, particularly given its state budget revenue and resources held by the State Treasury.

His assessment came after the U.S. Federal Reserve kept interest rates unchanged, although the probability of a rate hike in September was estimated at 65 percent.

Such a move could place additional pressure on Vietnam's financial system and require policymakers to carefully balance liquidity, Trung said.

Against that backdrop, faster public investment disbursement could help channel more money into the real economy.

Part of this additional liquidity could subsequently flow into the stock market and support trading activity.

Foreign capital represents another potential source of liquidity.

Foreign investors have sold a net VND100 trillion ($3.8 billion) worth of Vietnamese shares since the beginning of the year, leaving domestic investors to absorb a substantial amount of supply.

However, Trung expects foreign selling pressure to gradually ease and possibly reverse into net buying once Vietnam's market upgrade officially takes effect in September.

The upgrade could also prompt index-tracking funds to begin allocating capital to Vietnamese equities.

"We have received positive signals that around $2 billion from major international funds is awaiting disbursement," Trung said.

"Several securities firms also expect both active and passive funds to deploy capital in the coming period."

If foreign investors return as net buyers, their capital could strengthen market liquidity and improve investor sentiment, he added.

Structural reforms required for long-term growth

Sustainable liquidity growth will require deeper structural reforms beyond temporary policy stimulus and foreign inflows.

Tyler Nguyen Manh Dung, senior director of market strategy research at Ho Chi Minh City Securities Corporation (HSC), emphasized that banking interest rates remain the primary macroeconomic factor influencing stock market cycles.

"The VN-Index's growth closely follows the credit cycle, while stock valuations tend to bottom out when market interest rates peak," Dung pointed out.

Interest rates are unlikely to decline sharply in the near term, he said.

However, once the banking system addresses its funding and liquidity imbalances, upward pressure on interest rates could ease, allowing them to enter a more stable phase.

"Although this would not guarantee a recovery in stock market liquidity, it would create an important condition for domestic investors to return," Dung said.

He added that Vietnam should further develop direct capital-raising channels, including corporate and infrastructure bonds, to reduce the banking sector's funding burden and support more effective interest-rate management.

Vietnam must also broaden its domestic institutional investor base to reduce market volatility caused by retail speculation.

Developing pension funds, life insurance funds, and wealth management firms will provide a stable, long-term capital floor for equities.

Finally, upgrading trading infrastructure remains essential to retaining foreign capital after the FTSE upgrade and positioning Vietnam for an MSCI upgrade before 2030.

Implementing a central counterparty clearing system (CCP), omnibus accounts, and global broker integration will ensure the market can absorb incoming foreign investment waves seamlessly.