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Vietnam's capital market lagging behind

Released at: 17:28, 18/04/2017

Vietnam's capital market lagging behind

Latest McKinsey report ranks capital markets in emerging and developed countries.

by Linh San

Vietnam has been listed among emerging capital markets that are significantly behind developed markets, with considerable financial, human, and social costs, according to a new research report entitled “Deepening Capital Markets in Emerging Economies”, released by McKinsey on April 12 and providing a snapshot of capital markets in developing economies.

Vietnam scored 1.2 out of 5 in the McKinsey Asian Capital Markets Development Index, covering 12 key APAC markets: Singapore, China, Japan, Australia, Indonesia, India, Thailand, Malaysia, Vietnam, Pakistan, South Korea, and the Philippines.

McKinsey has also developed a new way of benchmarking capital markets against each other and is also introducing the McKinsey Asian Capital Markets Development Index to help policymakers better benchmark their markets.

The outlook is that Asian countries do not yet have access to predictable capital market funding at scale, and investors lack the financial instruments to deploy long-term savings.

Markets like the US and the UK have many investment opportunities, including equity, financial institution, and corporate bonds, central government and municipal bonds, and securitized products. Some of Vietnam’s capital markets (for e.g. bond markets) are deemed “shallow” by McKinsey, meaning that investment opportunities, funding at scale, and pricing are less available or transparent.

Other key highlights include that emerging capital markets face challenges regarding the availability, diversity, and pricing of capital. Investors in emerging markets face similar challenges. They put a large part of their savings in physical assets such as real estate and gold, and bank deposits. The limited investments in financial assets are mostly in government bonds, AAA-rated corporate bonds, and equities.

According to the report, pricing efficiency is a complex topic and there is a healthy debate about the best way to measure it. However, there is substantial evidence from both event studies and mathematically-oriented approaches that emerging Asian equities markets are less efficient than more developed markets.

Research into the complexities of the quality of pricing information is relatively new but a useful starting point. Some of it is in the form of third-party benchmark efficiency indices, which suggests that developed economies seem to offer timely and accurate pricing information more consistently and reliably than most emerging markets. While Japan and South Korea are considered highly efficient, on par with Germany and the US, emerging markets like Pakistan and Vietnam appear to be highly inefficient in their pricing measures.

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