Stock listings — VietEcon

The number of stock listings in developed markets is generally drifting lower. At the same time, the market capitalization of these stocks are increasing, meaning that there are fewer but bigger companies. Lots of people are worried about one or both of these things. A few reasons:

For many people, investing in public equities is the only way to diversify away from bonds and home equity, especially in developed countries. Some people may be able to invest in private companies, either because they are owners/employees, or because they have enough money to meet the requirements to be an “accredited investor” in the US or “experienced investor” in the UK and EU. People saving for retirement benefit from the higher returns we have seen in equities, and need them more as defined benefit pension plans go the way of the Dodo bird.
Public companies provide transparency, which is helpful for other companies. They provide better benchmarking and better understanding of industry dynamics. And for investors, public companies provide much more transparency than private companies. That can be true even for investors in private companies. For example, some wealthy clients of Morgan Stanley were able to invest in Uber, but they weren’t provided basic financials.
Public companies provide much greater liquidity for investors. You can buy a stock, then turn around and sell it the next day (not investment advice). You can’t do this with your private company (although liquidity has increased somewhat with changes in rules).
Larger companies in the public markets also may be bad. Historically, small stocks have had higher returns than large cap stocks, and there are fewer small stocks now.

Now, what does this have to do with Vietnam. Well, I wanted to see if this was a trend in Vietnam as well. My supposition was that in emerging markets, the trends were still positve: that both the number of companies listed would be increasing as would their market cap. This isn’t exactly true.

Looking at ASEAN countries (see the chart above), Malaysia and the Philippines have seen the numbers of domestic companies listed either be flat for decline. Market cap of listed companies in both have increased, but not that much. In contrast, the number of companies listed in Vietnam and Thailand have increased, as have their market caps.

In Vietnam, at the end of 2018 there were 373 listed companies, which had a market cap of USD124bn or 52% of GDP. That’s well up from 2008 when it was 162 companies worth 10% of GDP.

What does this mean?

First, it should allow more regular Vietnamese people to invest in the stock market, maybe through retirement funds or something like that. Or even day trading (which is dumb - don’t do it: not investment advice). It basically broadens the amount of people that have exposure to public equities, which is a good. [Ed. please remember the author, as an ex-sell sider, is biased in favor of public equities.]

Second, it helps attract foreign investment, although of the kind that can quickly leave, given the liquidity in public markets.

Third, it opens up a number of companies, including state-owned enterprises, to more scrutiny and disclosure, and forces them to be more efficient. This month, Vietnam Airlines was listed with the hope that it would be more competitive, as the airline market sees increased competition.

These are just my initial thoughts. It’s not great for the number of companies listed worldwide to fall, and even worse than the average size of the companies left is growing. For multiple reasons. But as developed markets contract (in certain ways) emerging markets are where the action is. That is positive for their own citizens and for investors everywhere that want to diversify into faster growing economies.