What is VNindex? A Comprehensive Guide to the Vietnamese Stock Market Index

Basic Concepts of VNindex

VNindex is understood as the Vietnam stock index, reflecting the total market value of listed companies on the Ho Chi Minh Stock Exchange (HOSE). This index is calculated based on the market capitalization of all active companies on HOSE.

An interesting point: Vietnam’s stock market not only has VNindex but also other indices such as HNX Index or Upcom Index. However, HOSE remains the main centralized trading platform established on 28/07/2000, marking the birth of Vietnam’s stock market. For this reason, VNindex is considered equivalent to internationally renowned indices like Dow Jones.

To understand better: when VNindex is at 1,203.03 points (as of April 26, 2024), it means that the total market capitalization of all stocks on HOSE has increased 12.03 times compared to the base value on July 28, 2000. The State Securities Commission is the governing body, applying the Paasche price index method to calculate this index.

Operating Mechanism and Practical Significance

How VNindex is Calculated

The formula for VNindex is based on:

• The current circulating volume of stocks
• Current stock prices
• The volume of stocks at the base period
• Stock prices at the base period

This method ensures that the index accurately reflects market fluctuations.

Core Value VNindex Brings

From an investor’s perspective, VNindex provides three key pieces of information:

1. Market sentiment recognition: When VNindex rises, it indicates that investors are optimistic, with active capital flowing into the market. Conversely, a decline suggests market anxiety and pessimism.

2. Economic health assessment: VNindex acts as an indirect tool to evaluate economic performance. It records investor expectations or concerns based on micro factors such as government policies, business development speed, and inflation pressures.

3. Market performance measurement: By comparing current market capitalization with the initial issuance value, one can track and compare stock market performance across different periods.

Development Journey of VNindex Over Time

Hot Development Period (2006-2007)

In 2006, Vietnam joined WTO, marking a milestone. This event triggered a strong rally in the stock market. However, after the rapid increase, the market declined with consecutive correction sessions.

2007 was dubbed the “golden year” of the market. The government implemented new tax incentives for listed companies, and many state-owned enterprises conducted IPOs. VNindex nearly quadrupled compared to the previous year.

Crisis and Recovery (2008-2009)

2008 brought difficulties as the global economic recession hit hard. However, from early 2009, government stimulus policies helped VNindex begin to recover.

Impact of COVID-19 Pandemic (2020-2021)

At the beginning of 2020, the Vietnamese stock market experienced a 31% decline due to COVID-19. Foreign investors continuously sold off. But measures such as interest rate cuts and effective pandemic control helped the market turn “green” again. From Q2 2020 to Q4 2021, the Vietnamese stock market continuously grew, surpassing the old peak of 1,211 points and reaching a new high of 1,536 points, with trading volume exceeding 40,000 billion VND.

Adjustment Period (2022-2023)

2022 was a disappointing period as VNindex fell in a continuous downward trend for 9 months after reaching the peak. This decline was closely related to the Fed’s prolonged interest rate hike cycle from late March 2022 to July 2023. Currently, the market fluctuates around 960-980 points.

However, 2023 shows positive signals. After the Fed ended its rate hikes, VNindex recovered strongly with a performance of 15.78%, comparable to Dow Jones (13.36%).

Year 2019 Context: Impact of Trade War

2019 saw challenges from the US-China trade war along with political uncertainties. However, by the end of the year, the market showed signs of recovery. Vietnam was ranked among the top 20 economies contributing significantly to global GDP growth, attracting more foreign investors.

Pandemic Challenges and Optimistic Signals

In early 2020, under COVID-19 impacts, the Vietnamese stock market experienced a severe decline, ranked among the top 10 markets with the largest drops globally (according to Indexq). However, with government economic support measures, the market gradually recovered.

Comparing VNindex with International Indices

VNindex Compared to S&P 500, Dow Jones, and Nasdaq

When compared to international indices like S&P 500, Dow Jones, or Nasdaq 100, VNindex still shows significant differences in absolute value. This is understandable because Vietnam’s stock market is still young and faces many technical limitations:

• Higher risk: Foreign capital attraction is still limited
• Less flexible market mechanisms: Restrictions like T+2 and other trading regulations
• Shorter development history: Compared to long-established markets in the US

The US stock indices are considered the most ideal worldwide, safer and more reliable in the eyes of investors.

However, in terms of growth rate, VNindex deserves attention. With an increase of over 550% in the past 12 years (from the 2009 bottom), averaging about 45% annually, Vietnam’s stock market is becoming an attractive destination for domestic and international investors.

Difference Between VNindex and VN30

Similarities

Both indices can directly influence investor psychology. Their upward or downward fluctuations significantly impact investment decisions.

Differences

Regarding Definition:

• VNindex measures the change in total market capitalization relative to the base value on 28/07/2000. It indicates how many times the market capitalization has changed since the first trading day.
• VN30 focuses only on the 30 largest-cap companies, measuring the change in the value of this group.

Regarding Price Calculation Method: VNindex is entirely based on the market capitalization of all stocks on HOSE without considering the free float (E0@free float(). It also lacks mechanisms to control excessive influence from high-weight stocks.

In contrast, VN30 addresses these issues. The VN30 group currently accounts for over 80% of the total market capitalization, as Vietnam’s stock market remains quite basic with a large gap between top-tier companies and small firms. Therefore, VN30 more accurately reflects overall stock price fluctuations and is used as a basis for developing products or investment funds.

Leading Companies on the Vietnamese Stock Market

Outlook and Conclusion

In the global context, Vietnam stock market is still in its early development stage. Although it has achieved notable milestones after more than 20 years since 2000, there is still much room for growth.

VNindex inevitably has certain limitations in market capitalization calculation and has not fully controlled the excessive influence of high-weight stocks. However, with an impressive growth of over 550% in the past 12 years )~45% annually(, VNindex remains a noteworthy index for investors. Vietnam’s stock market is gradually becoming an attractive destination for both domestic and international capital, promising good opportunities for skilled investors to analyze and predict market trends.