The fifth guest in B2B Cambodia's 'Vietnam Series' is Matthew Smith, Head of Institutional Research at Yuanta Securities Vietnam, who sat down with us to provide his analysis of what makes Vietnam's securities market and economy successful.
Established in 2000, Yuanta Securities Vietnam was one of the first six securities firms licensed by the State Securities Commission of Vietnam. Its parent company, Yuanta Financial Holdings, holds the top market position in Taiwan.
Smith has worked in Asia since 1995 and has been in the financial industry for 22 years.
B2B Cambodia: How did Vietnam's capital markets evolve and grow over time? What are some lessons Cambodia could learn?
Matthew Smith: "I think in 2001 was when the stock markets were officially launched. For the first, I would say, five or six years, there were really just two stocks that mattered, both state-owned enterprises, one of which was is still a substantial component of the index, which is Vinamilk—the largest dairy product manufacturer and distributor in Vietnam till today. The other example was an agricultural company, with the acronym HAGL (Hoang Anh Gia Lai), which is still listed but is a lot less relevant today following the crisis of 2008-2012.
"After the Asian financial crisis in the 90s, the Vietnam dong devalued, just like all currencies around the region did, and the government decided to liberalise, which is great. They opened up the stock market, they issued new licenses for financial services. There were a bunch of new joint stock commercial banks that didn't exist that suddenly came into existence, and these were private sector led organisations. The issue was that the light regulation was a little bit too light, and in fact, what ended up happening was there was a huge bubble driven by credit expansion. The new JSC (joint-stock company) banks came in and loans across the system were expanding by 20 to 30 per cent between, say, 2002 and 2008.
You can't have your entire system expanding by 20 to 30 per cent every year without having a bubble, and without eventually having some kind of financial crisis, which did occur in Vietnam. Basically the whole thing crashed.
"The banking system was in a crisis, I would argue, for probably six years between 2008 and 2014. Since 2014, the central bank, especially, but also the regulators overall in Vietnam, have been much more prudent in their approach to how they're regulating the financial services industry and the banks especially. Since 2014 there's also been a big push by the authorities to equitise, so there's been a lot more IPOs, more stocks coming onto the market. So [the market] went from 50 million to sort of 200 to 300 million between 2016 and 2018. Foreigners were very interested in this market, seeing it as the next Asian tiger economy. That's finally starting to emerge from post-war central planning, followed by this credit bubble in the early 2000s. Now things are starting to look better.”
Watch Part 2 of our interview with Matthew Smith of Yuanta Securities Vietnam:
B2B Cambodia: What level of interest have you observed from domestic retail investors in Vietnam?
Matthew Smith: "In Vietnam, I've come across—we call them retail investors, but they're high-net-worth people. These are elite people who are largely self-made, in terms of first generation wealth, and they are not unsophisticated. They ask very, very sophisticated questions about the business. They might not care about discount rates and these theoretical issues, but they're asking about margins, about competitive moats, the smart things that institutional clients also ask about. They probably care more than the institutional clients do, because it's their money. So I've been impressed with a certain strata of Vietnam's retail clients.
“The brand of the company itself is quite important, without a doubt. It's not necessarily a brand like a consumer goods brand, but rather the brand of the management, the brand of the board of directors who actually run the company and whether you can trust those people or not. I think that's key.”
B2B Cambodia: If you were to point out some things that were very successful for Vietnam reaching out to international investors, what would those things be that Cambodia could learn from?
Matthew Smith: “I think probably having the authorities be fully behind this effort to boost the market… because everything, everything sort of emanates [from top-down]… I think it's very critical to have that buy in from the highest level of the government to promote [the market]. Second, I think corporate governance, investor relations, transparency, willingness to engage with the street, is absolutely critical. And I think, third, is obviously having a very solid story to tell makes it a lot easier to engage and to entice institutions, foreign institutions in particular.”
B2B Cambodia: What would be the one thing you would say was successful in developing the retail market in Vietnam?
Matthew Smith: "We had this COVID episode in March 2020. When that started, of course the markets tanked and everybody was worried about staying alive or not, everybody was working from home. What's really interesting is that during that period, between 2020 up to the end of 2021, the turnover in the market went from 150 to 200 million a day, to 1.5 to 2 billion a day…obviously, this helped to have share prices rising, momentum creates momentum.
“What facilitated this was the advent of online Know Your Customer (KYC), which hadn't existed previously. Suddenly you can just go online, you're sitting on your couch, don't want to go outside because you're worried about catching this horrible plague, but you could just type in some information, show your ID and bam, you've got a new game you can play. And simultaneous with online KYC was the adoption of Margin Finance…”
Watch Part 3 of our interview with Matthew Smith of Yuanta Securities Vietnam:
B2B Cambodia: Looking at Vietnam more broadly, how has the country grown so fast and so big? What are the country's main success factors?
Matthew Smith: "I think the whole China Plus One theme has been very good for Vietnam, and there's various reasons for that. Obviously, having a hundred million population helps, so the workforce is there. And again, I think for now, for the next 10 years or so, the demographics are actually quite good for Vietnam. That won't be the case in 2035, but right now things are actually looking quite good. You're getting a tailwind from a relatively young, rapidly aging, but still young population base. I think the median age here is 35, so it's relatively young. I think having land and relatively easy logistics, and a land border with China, helps a lot as well. Most of the electronics manufacturing is done in the north, and that's because it's closer to China.
“Vietnam has also had 13 or 14 FTAs (foreign trade agreements) signed with various countries around the world, so it's very open for trade… They're promoting the country for sure and negotiating deals that are beneficial to everybody. These are win-win deals. They're not sort of one-sided deals on anybody's part.”
B2B Cambodia: What are the major industrial sectors performing well in Vietnam, that are really the core of the economy?
Matthew Smith: “We're talking about manufacturing and export, manufacturing in particular. But to be honest, I think about 75 per cent or so of manufactured exports are done by FDI companies—foreign companies that have come here and set up operations… I believe Samsung is by far the largest single exporter from Vietnam, and it accounts for something like 15 to 17 per cent of total exports from Vietnam, just from this one company. It's largely the Samsung Galaxy phones.”
B2B Cambodia: How did Vietnam progress from lower-end manufacturing to higher-end manufacturing?
Matthew Smith: "It hasn't really been an endogenous effort, it's more of an exogenous effort. But the willingness of all of the players, including the government, to allow foreign companies to come in, contributed.
“I think there have been incentives related to taxation, related to land or leasing or purchases… there's no doubt that this has been a big factor, but there's also the soft attractions of Vietnam, such as the skilled workforce, education levels… Vietnam's PISA scores for science are the highest in Southeast Asia outside of Singapore… The primary education system here is very, very solid. When it gets to the university levels, we can talk about it, but the primary education results here are very, very solid.”
B2B Cambodia: Looking at the crystal ball, where is Vietnam's economy headed?
Matthew Smith: "Right now, if we look at Vietnam in terms of its industrial base, Vietnam is definitely moving up the value chain. When you move up the value chain, you're leaving something behind. Lower-end is the wrong word, but more labour-intensive manufacturing, I think, is going to move elsewhere. The ability of Vietnam to continuously supply that labour force is starting to ebb. There aren't any kids that are graduating from high school today that want to go and work in a sweatshop and make Nike shoes—it's just not something that they want to do. And in fact, Bao Nguyen, which is Nike's main OEM, it used to, and might still, be the largest private sector employer in Ho Chi Minh City, and they make shoes and clothes. But I've read somewhere that the average age of their workforce is in the 40s. So you've got people that have been working there for 20 years plus and not necessarily being replaced.
“Now we've got an economy today which is a GDP per capita of USD 5,000, and 20 years ago, it was less than USD 1,000. It was maybe USD 600. So things have changed, and that means that the labour force is not going to be incentivised to go and work in those factories. Of course, if you pay them enough, they'll do anything… So those types of manufacturing operations, I think, are migrating elsewhere, and Cambodia should benefit from that as well.”