Beyond India: Exploring the Rising Stock Markets of Emerging Economies

The growth of stock markets in emerging economies is often a product of increased capital inflows and rising trading volumes. While countries like India have impressive stock market performance, there are several other emerging economies that are experiencing strong market growth. This article will delve into one such economy, Vietnam, and explore the factors contributing to its rising stock market.

Identifying Emerging Economies with Rising Stock Markets

Stock markets rise when there is an increase in the quantum of money flowing into them, and when trading volumes increase. Vietnam is among the emerging economies that are attracting significant foreign capital, leading to a surge in its stock market performance. To understand the factors behind this rise, let's examine the trading volume at the Ho Chi Minh City Stock Exchange.

In the past few years, trading volumes at the Ho Chi Minh City Stock Exchange have quadrupled, with the exchange now trading 50 million worth of equities. The blue line in the chart below depicts the trading volume of Vietnamese equities over time.

Why Vietnam?

Several factors contribute to the rising stock market performance of Vietnam:

Stable Economic Growth

One of the main reasons is the steady economic growth of Vietnam. As the economy continues to grow, businesses and investors are more inclined to invest in the market, leading to an increase in capital inflows.

Banking Sector Improvements

Another significant factor is the improvement in the banking sector. The Banking Association of Vietnam reported that the Non-Performing Asset (NPA) rate, which was at a concerning 5.74% in 2012, has significantly improved. The decrease in NPAs is attributed to a combination of regulatory reforms, stronger governance, and the privatization of state-owned banks, which has led to increased transparency and accountability.

Privatization and Manufacturing Boom

Furthermore, Vietnam is well positioned to become a key location for high-technology manufacturing. With global players like Samsung, LG, and Foxconn operating in Vietnam, the import of machinery and computer hardware has been increasing. This is a leading indicator of a manufacturing boom, which is expected to drive economic growth and, consequently, the stock market. The manufacturing sector is a core component of Vietnam's economic strategy, aiming to position the country as a leading manufacturing hub in Southeast Asia.

Foreign Investment and GDP

Foreign investment is another key driver of the rising stock market in Vietnam. According to the Ministry of Planning and Investment, foreign investment in Vietnam has been growing at an annual rate of 12%. This substantial growth in foreign investment has resulted in a total investment volume of 16 billion USD, which constitutes a noticeable 8% of GDP. This influx of foreign capital not only supports the stock market but also leads to economic diversification and technological advancements.

Conclusion

In conclusion, the rising stock markets of emerging economies like Vietnam are a testament to the strength of their respective economies. Factors such as steady economic growth, improvements in the banking sector, and the manufacturing boom driven by foreign investment all contribute to the growth of the stock market. As these economies continue to attract more capital and expand their global presence, the future looks bright for their stock markets.