1571 the impact of macro factors on the stock market in viet nam masters thesis (FILE WORD)

Đinh Thanh Huyền
Student ID: 17047720

Dissertation submitted in partial fulfillment of the

UWE .
Bristol

ounhΓιtv
England

Requirement for the MSc in Finance

FINANCE DISSERTATION ON
The impact of macro factors on the stock
market in Vietnam
NAME OF STUDENT: DINH THANH HUYEN
ID No: 17047720
Intake 1

Supervisor: Dr. Tran Thi Xuan Anh

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Đinh Thanh Huyền
Student ID: 17047720

September 2018

THE IMPACT OF MACRO FACTORS
ON THE STOCK MARKET IN
VIETNAM
By Dinh Thanh Huyen
ID: 17047720

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Đinh Thanh Huyền
Student ID: 17047720

Research proposal
- The research question: The stock market is quite young in Vietnam, but it has a
certain impact on the economy. Over the years, there has been a lot of domestic and
international economic and political turmoil, so it has made significant changes in the
market. The integration and attraction of foreign investors is a positive sign for the
Vietnamese economy. Although there have been a lot of researches and articles on the
impact of macro factors on the stock market, it seems to me that this is a very good
and practical subject assist. Based on previous research, I will provide further analysis
of some of the hopeful contributions that can be made to the comments that will help
boost Vietnam's economy.
- Research by others This is a topic that has been studied so much, so I have based on
previous research to base this analysis. Before choosing the topic, I studied some of
the previous highlights to make the basis for my own writing.
- Research methods and data: In this study I used data on CPI, GDP, exchange rate,
gold price, VN Index from 2000 to 2018 for analysis. These are typical macro
indicators of the Vietnamese economy. The data I use are taken from the General
Statistics Office, the Securities and Economic Review.
- Timescale: This article is made within 3 months. This is not too long and not too

short for me to study the subject. I hope I can spend as much time as possible to make
my dissertation the best.
- Final format: My research consists of 5 parts. In this essay I will analyze the stock
market, the stages of development, the research model, analysis of macro factors and
its impact on the stock market in Vietnam. Then give the comments, reviews.

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Đinh Thanh Huyền
Student ID: 17047720

Executive summary
This essay focuses on the effects of inflation on the stock market in Vietnam, the causes of
inflation and its effects, and the short- long term market Vietnam Stock Market (VN-Index)
and Inflation (Consumer Price Index CPI). In this essay I have used quantitative methods,
regression models to evaluate and comment. After all analyzes, it is clear that inflation has a
strong impact on the stock market in both short and long term. In short, the correction speed
is relative equilibrium slow, negligible. In the long run, inflation and exchange rate
fluctuations are strong. In contrast to the VN-Index, the interest rate also negatively affected
the index, however, was weaker and the gold price was impacted along the VN-Index. Based
on the results of the research, some solutions are proposed to contribute to the support
Vietnam's stock market develops stably and sustainably.
In the Vietnamese market, changes in policies as well as macro factors often have a strong
impact (both positive and negative) on the stock market and the psychology of investors.
Therefore, the study of the relationship between the macroeconomic factors and the volatility
of Vietnam stock market is very important.

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Đinh Thanh Huyền
Student ID: 17047720

Table of content
Executive summary....................................................................................................................4
CHAPTER 1: Introduction.........................................................................................................8
Reason for choosing the topic................................................................................................8
Overview of the main contents of the thesis:.........................................................................8
Objectives of the study:..........................................................................................................8
Research Issues:..................................................................................................................... 8
Research subjects:.................................................................................................................. 9
Research scope:......................................................................................................................9
CHAPTER 2: Studies on the macro factors affecting the stock market in Vietnam................10
Literature review..................................................................................................................10
Overview of Vietnam stock market......................................................................................14
The macro Index.................................................................................................................. 15
Gross National Product - GDP.........................................................................................15
Consumer price index - CPI.............................................................................................15
Inflation............................................................................................................................16
Price of gold.....................................................................................................................18
The stages of development of the stock market in Vietnam................................................19
The period 2000-2005: Thetoddler stage of the stock market..........................................19
Period 2006: Breakthroughdevelopment of the Vietnam stock market............................20
Period 2008: In the general trend of the economy, Vietnam stock market closed in 2008
with a sharp decline..........................................................................................................21
In 2017 stock market: One year "overwhelmed" record..................................................23
The role of the stock market.................................................................................................24
The impact of inflation on the stock market........................................................................26
CHAPTER 3: Overview of the macroeconomic situation and Vietnam stock market in the

period of 2000 - 2018...............................................................................................................29
The period from 2000 to 2005.............................................................................................29
The period from 2006-2009 is the accelerating period of the Vietnam stock market..............30
The period 2009 - 2010: The recovery period after the crisis but still implies many risks .32
The period 2011 - 2012: the period of tightening monetary and fiscal policy made the stock
market difficult.....................................................................................................................33
The period 2012 - 2014: Stable growth period with many positive signals.........................34

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Đinh Thanh Huyền
Student ID: 17047720

The period 2014 - 2016: growth slowdown and many negative developments on the stock
market..................................................................................................................................35
In 2017: a record year.......................................................................................................... 36
CHAPTER 4: Research Methods.............................................................................................38
CHAPTER 5: Conclusion........................................................................................................ 43
References................................................................................................................................44

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Đinh Thanh Huyền
Student ID: 17047720

Lists of Table and Figures

Figure IJN

Index2006......................................................................................................20
Figure 2:VN Index 2008......................................................................................................21
Figure 3....................................................................................................................................22
Figure4....................................................................................................................................24
Figure 5: CPI from 2011-2016.............................................................................................25
Figure 6: Inflation over the same period last year of the months of the year..........................26
from1∕2008 to 2/2017...............................................................................................................26
Figure 7: Market capitalization ratio of Vietnam stock market in 2006 - 2009.......................30
Figure 8: Situation of listed companies from 2006 to 2009.....................................................30
Table 1:_Scale of the stock market from 2000 to 2005 (Source: State Securities Commission
of Vietnam)..............................................................................................................................29
Table 2: Number of securities companies & number of trading accounts registered from 2006
to 2009 ....................................................................................................................................31
Table 3: Indicators from 2000 to 2018.................................................................................38

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Đinh Thanh Huyền
Student ID: 17047720

CHAPTER 1: Introduction
Reason for choosing the topic
Vietnam stock market has been operating for more than 15 years, although not too long, but it
has developed rapidly become an indispensable factor in making the national economy strong
and play more developed. It appears as a channel for raising capital for businesses and helps
to assess the situation of the business is good or bad. It attracts domestic and foreign
investors. However, in the last few years, the stock market has been affected by the economic
and political turmoil. In addition, inflation is an important indicator of economic
performance. The impact of inflation is not just in an area where many sectors and markets

are no exception. When it comes to stocks, we will talk about stock prices, investments,
benefits and risks in securities investments. The political, economic and business conditions
of all this will affect stock prices, which will create a lot of volatility. So I chose to focus on
the impact of inflation on the stock market to better understand the causes and consequences
and to come up with solutions to control and improve.

Overview of the main contents of the thesis:
The thesis consists of 5 chapters:
Chapter 1: Introduction.
Chapter 2: Previous studies on the impact of inflation on the market stock market.
Chapter 3: Research Methods. Impact of macro factors Vietnam's Stock Market
Chapter 4: Research Methods
Chapter 5: Conclusions and Recommendations.

Objectives of the study:
The research objective of the project is to clarify the impact of inflation on the market
Vietnam Securities Market.

Research Issues:
One of the issues that many people are concerned about is inflation, interest the exchange
rate, gold price impact on the VN-Index. In some countries the world as well as in the region,
this issue has been many studies, in Vietnam there are also some studies related to the

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Đinh Thanh Huyền
Student ID: 17047720

variation stock price index. This issue has been raised and analyzed quite a lot so that

solutions can be found to improve the situation.

Research subjects:
The subjects of the thesis include: Vietnam stock market, inflation factors (consumer price
index CPI), lending rates of banks trade, exchange rate VND / USD, gold price.

Research scope:
Vietnam's stock market is limited to the Ho Chi Minh Stock Exchange is represented by price
index VN Index.
Vietnam's stock market is a new and nascent market but it plays a very important role in
economic development. In developing countries the stock market is also developing very
strongly. We can see that there are many factors that affect the stock market, including
inflation. In this study I focus only on the CPI, GDP, interest rates and indexes for analysis.
With this little contribution, I hope it can provide more useful information that will benefit
the investors who want to grow in this market.

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Đinh Thanh Huyền
Student ID: 17047720

CHAPTER 2: Studies on the macro factors affecting the stock market in
Vietnam
Literature review
Introduced by Fama (1970) with a solid foundation, "Efficient Market Hypothesis" or
"Efficient Market Hypothesis" (EMH) set the basis for extremely important theories, policy
makers as well as for stock investors. Accordingly, policymakers are free to implement
national macro-economic policies without fear that these policies will alter the nature of the
stock market because they affect only the price index Securities

EMH believes that competition among investors - who always want to maximize their profits
- ensures that all information is fully reflected in the stock price so investors cannot make a
profit. Get abnormal returns through predictions of future stock market trends.
However, studies by Gan, Lee and Zhang (2006), Mukhejee and Naka (1995), Rahman, Sidek
and Tafri (2009), Narayan, K.P. and Narayan, S. (2010) rejected the conclusion of EMH.
These studies confirm that macroeconomic factors clearly affect earnings and stock price
volatility. (Abdalla, I.S.A. and Murinde, 1977)
The results of Fama and Schwert (1977), Chen, Roll, Ross (1986), Nelson (1976), DeFina
(1991) and Jaffe-Mandelker (1976) emphasize the inverse relationship between inflation and
stock price. Basically, the stock market will operate under two conditions: high economic
growth and low inflation. But if the economy develops and inflation is high then it is not
good. When inflationary pressures soar, investment analysts will be skeptical of economic
prosperity or job growth reports. The reason for this is that they fear that there is a boom in
inflation, a fake development that has been created by the government's creditworthiness,
because the government accepts a budget deficit higher and expand the money supply. The
real relationship of inflation and stock prices is always a difficult experimental question and
the relationship will change over time. Experiences from the stock markets in developed
countries show that inflation and stock prices are inversely correlated, because the trend of
inflation determines the nature of growth. High inflation is always a sign that the economy is
hot; signaling the growth of unsustainable, while the stock market as the thermometer
measuring the health of the economy. When inflation is high, the money goes down, people
do not want to keep cash or deposit money in banks but transfer to gold, real estate, strong
foreign currency ... makes a significant amount of idle capital of the commune Assembly is in
the form of dead property. Lack of capital, not accumulated to expand production, the growth

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Đinh Thanh Huyền
Student ID: 17047720

of enterprises in particular and the economy in general will slow. High inflation has a direct
impact on businesses: Although business activities are still profitable, high dividends but high
dividend rates are attractive when inflation is high. This makes securities investment is no
longer a lucrative channel. (Joseph Tarza Sokpo1, Paul Terhemba Iorember, 2017).
Laopodis (2005) considers dynamic interactions among stock markets, economic activity,
inflation and monetary policy. The researcher looks at the first issue related to the role of
monetary policy. By using co-ordinate test, causality, error method for two-variable function
and multivariate VAR model or VEC model. As a result of the two variables, they find that
there is a weak correlation between stock returns and inflation, which means that the stock
market can counter inflation. On the other hand, the two results confirms a negative
correlation and a one-way relationship between stock returns and. The Fed's reserves in the
1990s were very weak in the 1970s.With the multivariate model; they have found strong
support of short-term correlations in the 1970s with a one-way relationship in the 1990s. This
shows that the return on equity is not positive for the policy monetary easing, which took
place during the 1990s, or a negative correlation tightening monetary policy. There is a
consistent dynamic relationship between the two currency books and stock prices. This
conclusion seems to contradict Fama (1981). It is assumed that inflation and economic
activity are negatively correlated but active economic and yield ratios are positively
correlated.(Nikiforos T. Laopodis, 2006).
Aliyu Shehu Usman Rano (2010): Research using the model GARCH assesses the impact of
inflation on margins and the stability of the Nigerian and Ghanaian stock markets based on
monthly time series data for 1998-2010. In addition, the impact of asymmetric shocks was
investigated using the second-generation GARCH model developed by Sentana (1995), in
both countries. The results show that in the Nigerian market bad news has a greater impact on
the stability of the stock market than good news and vice versa for the Ghana market. Second,
the inflation rate and its 3-month averages have a significant impact on stock market
volatility in both countries. The measures taken to curb inflation in the two countries will,
therefore, undoubtedly reduce the volatility of the stock market, improve the stock market
return and increase investor confidence.

Seyed Mehdi Hosseini, Zamri Ahmad, Yew Wah Lai (2011): This article investigates the
relationship between the stock market index and the four Macroeconomic variables, namely
crude oil price (COP), money supply (M2), public production industry (IR) and inflation rates

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Đinh Thanh Huyền
Student ID: 17047720

(IR) in China and India. Study time from January 1999 to January 2009 by means of
verification Augmented Dickey-Fuller, ADM Johansen-Juselius Co-integrations test (1990),
misaligned variant model number (VECM). The results show that in both long and short
term, there is a link between the four selected macroeconomic variables and the China and
India stock market indices. In the long run, the impact of rising crude oil prices in the
Chinese market is positive but in the Indian market this effect is negative. On the money
supply, the impact on the Indian stock market is negative, but for China, there is a positive
effect. The impact of industrial production is negative and only in China. In addition, the
impact of rising inflation on stock indices is positive in both countries. In short, the impact of
crude oil prices is positive in India. This effect is negative and significant in China. The
impact of money supply on the Chinese stock market index is positive but for India, it is
negative. However, all these effects are negligible. On the other hand, the impact of inflation
on the current Chinese stock index (SSE) is positive and significant but this effect lasts a
month even though the positive effect is negligible. Meanwhile, in India the impact is
negative but not significant. However, the lag efficiency sound and significant. (Seyed Mehdi
Hosseini, Zamri Ahmad, Yew Wah Lai , 2011). Thus, by referring to empirical studies on the
influence of inflation to the stock market, all research papers agree the content of the impact
of inflation on the stock market in the short term and in the long term. However, different
studies have different conclusions about different levels of influence, and there are
appropriate measures to improve the situation.

Caroline Geetha, Rosle Mohidin, Vivin Vincent Chandran and Victoria Chong (2011): Study
the relationship between inflation and stock market in Malaysia, US and China, time series
data from January 2000 to November 2009, includes interest rate variables (Tbill interest in
the market Malaysia and US interest rates, China central bank interest rates, inflation (CPI),
exchange rates, GDP (industrial production) and stock prices. Data derived from the
International Financial Statistics (IFS) database, with the exception of China's CPI, are
obtained from the National Bureau of Statistics of China. All data is converted to logarithm.
The paper uses the Augmented Dickey Fuller Test (ADF) - to determine the stopping of time
series data. Co integrations test to look at the long-term relationship between variables.
Vector error correction model (VECM) to explain the influence of independent variables on
dependent variables in the short run. The result is that in all three countries there is latency.
The Johansen assertion confirms that there is at least one co-significant equation of 5 percent
for Malaysia and the United States. On the other hand, China has three equations that

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Đinh Thanh Huyền
Student ID: 17047720

integrate at a level of 5 percent, a Co-significant equation of 5 percent. This means that there
are long-term relationships between variables in the three countries. The results of the VECM
show that there is no short-term relationship between the stock market, expected inflation,
exchange rates, unexpected inflation, interest rates and GDP for Malaysia and the US.
However, the results of China's VECM show a short-term relationship between the expected
inflation rate and China's stock market. Research shows that there is a long-term relationship
between stock markets and variables in Malaysia, the US and China. As a warning, investors
investing in three major stock markets may be at risk of benefiting from diversification of
their portfolio because of the link between macroeconomic variables. and share prices on the
stock market. Thus, the return on the stock market may be affected by inflation as

inflationary pressures may threaten the company's future profits and nominal discount rates
rise under inflationary pressures play, reduce the present value of future profits and thus
affect the stock market. Therefore, Malaysia, the United States and China need to review and
improve their monetary policies that are consistent with low inflation and inflation
expectations. On the other hand, some evidence suggests that: One is having a significant
short-term relationship between the stock market and
China's expected inflation rate. Second, there is a significant relationship between the
exchange rate and the Chinese stock market. As such, investors may not achieve any
diversified portfolio interests in the short term. This study highlights the importance of
macroeconomic variables affecting the stock market, as well as inflation that again becomes
an important issue and focus of the Government in macroeconomic management. As a result,
it is suggested that Malaysia, the US and China should use the information on expected
inflation, unexpected inflation, exchange rates, interest rates and GDP forecasting the
movement of the stock market.(Caroline Geetha, Rosle Mohidin, Vivin Vincent Chandran ,
2011)
Garefalakis, Dimitras, Koemtzopoulos, Spinthiropoulos (2011): study the determinants of the
Hong Kong stock market (HSI) such as oil prices, S & P 500 index, gold prices and USD /
JPY exchange rates. Data from January 2002 to August 31, 2009. The paper uses the
GJRGARCH model. As a result, the positive impact of the US stock market return, oil prices
on the Hong Kong stock market, the negative impact of gold price fluctuations, the USD /
JPY exchange rate to the HSI.

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Đinh Thanh Huyền
Student ID: 17047720

Nguyen Thi Bao Khuyen (2007): To examine the effectiveness of the stock market in
Vietnam, analyzing the relationship between VN-Index price indexes, industrial output,

Inflation, exchange rates, lending rates, and money supply changes through the Granger 2
causal model and error correction, data for variables in the model were collected by month,
from July 2000 to March 2007. The percentage of money supply did not affect stock prices,
the positive industrial output. To the stock price index, the inflation rate (CPI price index) has
a negative impact on the stock price index at a very high level, the exchange rate and lending
interest rates negatively impact the price index stock. There is a two-way causal relationship
between the stock price index and the macroeconomic variables, having a one-way causal
relationship from the macroeconomic variable to the stock price index ie the information on
the economy In general; it is not immediately reflected in the stock price index.
Phan Thị Bích Nguyệt và Phạm Dương Phương Thảo (2013) : Analyzing the impact of macro
factors on the stock market in Vietnam, the paper examines the correlation between the stock
market and six factors macroeconomic factors (money supply, inflation, real economic
activity, interest rates, exchange rates, prices oil). Data for variables in the model were
collected by month, from July 2000 to September 2011 (135 observations). Research applied
the test co-integrated testing method of residual unit testing Engle Granger,Unit testing and
multiple regression estimation equation to reflect termites correlate. Results of money supply,
industrial output, inflation, oil price Positive correlation with the stock market. Variable
interest rates, exchange rates Negative correlation with stock market. (Phan Thị Bích Nguyệt
và Phạm Dương Phương Thảo , 2013)
Thus, by referring to empirical studies on the influence of inflation to the stock market, all
research papers agree. The content of the impact of inflation on the stock market in the short
term and in the long term. However in each study have different conclusions about the impact
of different.

Overview of Vietnam stock market
On July 11, 1998, the Government signed the Decree No. 48 / CP on securities and stock
market officially launched for the Vietnam stock market. On the same day, the Government
also signed the decision to set up the Securities Trading Center in Ho Chi Minh City and
Hanoi. Preparations for the Vietnam stock market were actually issued by the State Securities
Commission of Vietnam (Decree No. 75 / CP) on November 28, 1996.

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Đinh Thanh Huyền
Student ID: 17047720

• Ho Chi Minh City Securities Trading Center (HSTC) was established under Decision No.
127/1998 / QD-TTg dated July 11, 1998 and officially put into operation the first trading
session on July 28,2000 with two stocks: REE and SAM. As of August 8, 2007, Ho Chi Minh
City Securities Trading Center was changed to Ho Chi Minh City Stock Exchange. By the
end of March 2013, 307 stocks, 5 fund certificates and 39 bonds were listed on Ho Chi Minh
Stock Exchange. Total volume of listed shares is 23,157,211.12 shares with a value of VND
236,487,125.54 million
• Hanoi stock exchange was officially born on March 8, 2005. Unlike Ho Chi Minh City
Securities Trading Center (which is the place for listing and trading securities of large
companies), Hanoi stock exchange will be a "playground" for small and medium enterprises
(with a charter capital of 5 to 30 billion copper). The number of shares is about 400 shares.

3. The macro Index
❖ Gross National Product - GDP
One of the most important indicators of the macro economy is GDP - Gross National
Product. If GDP growth is positive, it will positively affect the stock market in both
quantity and quality. As the GDP grows, the number of firms will increase, creating more
job opportunities and business opportunities for the economy. As the economy develops
well, foreign investors will see this as a potential market and thus we will attract direct
FDI and FII indirect investment. As more foreign investors improve the efficiency of the
market and help the market become more transparent, the market becomes more active
and dynamic. Economic growth creates more demand for financial services, from which
financial services will grow to meet the capital needs of businesses. However, when the

GDP is overheating, the stock market will be push to the highest level and the risk of
economic crisis and stock market crisis is possible.
❖ Consumer price index - CPI
This is a percentage measure to reflect the relative change in consumer prices over time.
This index only changes relative because it is just a representation of the entire consumer
goods.
The formula for calculating the consumer price index:

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Đinh Thanh Huyền
Student ID: 17047720

, ʌ _, v
c°s∣ of market basket t
Consumer Price Index (CPI) t= —----------—-------— * 100
Cost of market basket t

0

Normally, if the consumer price index stabilizes at 5%, it is the ideal figure for the stock
market to perform well. If CPI increases then we will have to increase input costs, so the
profit of the business will decrease so the business will no longer attract investors. In
addition, the state will have to tighten credit policies, investors will have more difficulty
accessing capital and reducing investment in the stock market. The increase in CPI led to the
increase in bank interest rates, at which time depositing savings or buying gold would
become more attractive than investing in securities. Increasing CPI could also have two
opposite effects: increasing the sale of bad stocks to withdraw funds and buying good stocks
to hedge inflation. This is also the cause of inflation.

❖ Inflation

In macroeconomics, inflation is an increase in general prices of goods and services over time
and the devaluation of currencies. When compared to other countries, inflation is the
devaluation of the country against the currencies of other countries. Simply put, inflation is a
sudden increase in the general price level.
The formula for calculating the inflation rate is as follows:
Inflation rate = -1P0D P'1 x 100%
P

P0 is the average price of the current period
P-1 is the price of the previous period
Inflation is an increase in the soaring prices of most commodities at a time that affects the
economy. Sargent (1999) develops a theory that includes some elements from DeLong (1997)
and Taylor (1997), and builds on the well-known Kydland-Prescott (1977) model of inflation.
In the Kydland-Prescott model, discretionary policymakers are tempted to create surprise
inflation in order to temporarily push unemployment below the natural rate. Private sector
agents recognize this temptation and adjust their inflation expectations upward accordingly.
In equilibrium, no surprises occur but the economy ends up with higher than optimal
inflation. (Kevin J. Lansing, 2000). When inflation occurs in any country, the currency loses

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Đinh Thanh Huyền
Student ID: 17047720

its value. For example, we can clearly see that the cost of producing a cake in the past was
50,000 VND but now the cost can be doubled because of the price of ingredients but sugar,
flour, butter milk increased, forcing producers to raise product prices up. So the currency has

lost value. Inflation is simply a rise in the average price of goods and services in the macro
economy. Which particular goods and services depends on the measure we are examining.
Consumer price inflation is the one usually in the news, and it takes a weighted average of
various items purchased by the typical household (the list being determined by survey and
then updated periodically). The average can rise while some prices have actually fallen, and
how much it reflects your personal situation is a function of how closely the basket of goods
and services in the index matches your buying patterns. But, the bottom line is that we say
that inflation has occurred when the average price of those goods and services has increased.
(John T. Harvey, 2011). One of the causes of inflation is that the government prints out too
much money and when the supply becomes too abundant, the currency becomes worthless.
This leads to excessive expectations and the people themselves create changes to the
economy. The political and economic turmoil in the world is also a factor causing inflation.
For small countries like Vietnam, any political and economic impact of world powers can
have an impact on the Vietnamese market. Currently, some government-funded services such
as electricity bills, tuition fees and medical services fees are increasing with usage, but people
will have to spend more money. This further demonstrates the depreciation of the currency.
Vietnam is a country that pulls out many organizations and signs many agreements, so if a
country pulls out strongly it will be affected.
For example, the US withdrawal from TPP, the export market of Vietnam will be
significantly affected.
In recent years, inflation has had a strong impact on the economy where the stock market is
also experiencing certain difficulties. A few decades ago, inflation was not strange even in
developed countries, which is several times higher than today. This thing shows that inflation
has been controlled better, experts have spent a lot of time and effort to learn and analyze and
then provide solutions to better control inflation.
In some cases inflation has become so extremely high that economists have a special name
for it: hyperinflation. Germany after the First World War is a classic example, but the most
recent extreme case is Zimbabwe where — at the peak in mid-2008 — prices doubled every
day. (Daniel Richards, Manzur Rashid, Peter Antonioni, 2018). On the other hand, supply is

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Đinh Thanh Huyền
Student ID: 17047720

also one of the causes of inflation. The demand for human housing is increasing, and
construction material suppliers are convinced that materials such as wood will become
favored and that companies and factories will leave the building. Their prices are high,
consumers will also have to spend more money to buy a product like. Sellers will be more
profitable. Many people find it beneficial to invest and sell the same products and this can
lead to inflation because the power of the market is huge and sometimes we can not anticipate
things what will happen. High inflation is always a sign that the economy is heating up,
signaling unsustainable growth, while the stock market as a thermometer measuring the
health of the economy. When inflation is high, money goes down, people do not want to keep
cash or deposit money in the bank because the nominal interest rate of deposits is lower than
the inflation rate. They moved to hold gold, real estate; strong foreign currency ... High
inflation also has a direct impact on the stock market: Although businesses are still profitable
and paying high dividends, dividends cannot be higher than the inflation rate. This makes
securities investment is no longer a lucrative channel. Legendary investor Stephen Leeb, in
the definition of stock trading time, the inflation rate, the growth rate of the US stock market
in the period from 1929 to 1981, and the relationship between inflation and inflation are
always the enemies of the stock market! (vietbao, 2007).
❖ Price of gold

Gold is different from other assets because the potential for gold is high liquidity and it reacts
to price changes (Colin Lawrence, 2003). The fluctuation of gold price affects most of the
world's economies including the stock market. Investors have a habit of using risk
management strategies simply to diversify their portfolios of commodities with either gold or
oil investments as these investments often have an inverse relationship reversing the trend of

the stock market
Garefalakis, Dimitras, Koemtzopoulos and Spinthiropoilos (2011) show that the volatility of
gold prices negatively affects returns on investment in the Hong Kong stock market.
Gold and fluctuations of the market have a causal effect on the price of gold increased, the
chaos of the economy increased.
When gold prices fluctuate, this means that the market is panicking and thus reducing the
confidence of investors. Investors often invest directly and indirectly in gold for risk
prevention.

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Đinh Thanh Huyền
Student ID: 17047720

In summary, it can be seen that the price of gold in politeness is considered a safeguard
against the damage that occurs during periods of inflation, social instability - periods when
stock prices have fallen.
In times of crisis, share prices often fall sharply while gold prices are rising, although the
level may vary for each economy.

4. The stages of development of the stock market in Vietnam
The period 2000-2005: The toddler stage of the stock market
From 2000 to 2005, the market was in a doldrums, eliminating the fever in 2001. In the first
five years, it seems that the market does not really attract the attention of the masses, and the
ups and downs of the market do not have the effect of expanding the social impact that can
affect the market, the economy as well as the life of every citizen. According to statistics of
the State Securities Commission, by the end of 2005, the total value of Vietnam's securities
market reached nearly 40 trillion dong, accounting for 0.69 percent of gross domestic product
(GDP). Vietnam stock market has 4,500 billion dong of shares, 300 billion dong of

investment fund certificates and nearly 35,000 billion dong of government bonds and local
government bonds, attracting 28,300 trading accounts. , the growth rate of the stock market
doubled compared to 2004, mobilized 44,600 billion, now the stock value against the
country's GDP reached nearly 1%. (saigon online, 2005)

19


Đinh Thanh Huyền
Student ID: 17047720

Period 2006: Breakthrough development of the Vietnam stock market.
In 2006 was the "breakthrough" development of the stock market in Vietnam. With a growth
rate of 60% from the beginning to the middle of 2006, the market capitalization volume has
increased 15 times in a year, and the Vietnamese stock market is increasingly attracting
domestic and foreign investors.

^VNINDEX 2006

Figure 1
In this year, the VN-Index in the trading floor of TP. Ho Chi Minh City (HoSE) reached a
record level of 809.86 points. Compared to the beginning of the year, VN-Index has grown to
146%. As of December 29, 2006, Ho Chi Minh City Securities Trading Center had the
participation of 106 shares, 2 fund certificates and 367 bonds with total face value of more
than 72 trillion dong. At the Hanoi trading center, the HNX-Index rose from 95 points at the
end of 2005 to 258 points, up 2.7 times in 2006. The number of companies trading on Hanoi
securities trading floor increased from 6 stocks to 87 share and 91 bonds at the end of the
year with a total registered face value of 29 trillion dong. The main cause of the boom of the
Vietnam stock market in 2006 came from important political and economic events. The cause
of the deep and long-lasting impact is the fact that Vietnam has officially joined the World

Trade Organization (WTO) as well as successfully organized the APEC Summit. Both of
these events have been and continue to make a good impression on foreign investors and that
is a signal for both direct and indirect waves of investment promising to flow into Vietnam.
In terms of capitalization, the entire Vietnam stock market with 193 stocks at the end of the
year reached VND220 trillion, equivalent to USD13.8 billion. (phuong mai, 2008)

20


Đinh Thanh Huyền
Student ID: 17047720

Period 2008: In the general trend of the economy, Vietnam stock market closed in 2008
with a sharp decline.

Figure 2
Market highlights: Index declined, market prices of shares declined sharply (many stocks fell
below par value), the liquidity was weak, the divestment of foreign investors, the intervention
of the executives and the dismal psychology of investors. (Tam Thien, 2009)
In 2009, despite the economic difficulties, but one year marked the strong development of the
stock market in Vietnam. Both VN-Index and HNX-Index recovered strongly above 50%.
The number of newly listed companies soared, many of which were listed on the floor. Hanoi
Securities Trading Center converted into a stock exchange.
From 2010 - 2012: The period of continued fluctuations in the stock market in Vietnam.
Most of the stocks fell in price, the market fluctuated slightly. This is mainly due to the
caution of investors. From the middle of September onwards, the Vietnam stock market has
had negative impacts from both domestic factors, such as problems arising after the lowering
of interest rates, especially the exchange rate and the world factor , as evidenced by the poor
performance in tackling the sovereign debt problem in Europe, which led to the weakening
prospects of the global economy. At the end of December 30th 2011, VN Index and HNX

Index closed at 351.55 and 58.74 points respectively. As compared to the beginning of 2011,
Ho Chi Minh trading floor dropped sharply 27.46% while Hanoi floor slumped to over 48%.

21


Đinh Thanh Huyền
Student ID: 17047720

In the early months of 2012, the stock market showed signs of improvement. Soon after, the
bad debt situation of banks increased, making it difficult for enterprises to access capital,
which led to difficulties in investing.

Figure 3
In 2015: This is the year when stock prices have risen sharply, which is a good year for
stocks. This phase formally signed the FTA between Vietnam and the Eurasian Economic
Union.

(cafef, 2015) Figure 4

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Đinh Thanh Huyền
Student ID: 17047720

In 2017 stock market: One year "overwhelmed" record
VN-Index increased more than 45%; market capitalization increased more than 70%; total
value of foreign investors exceeded $ 31 billion; The net buying value of foreigners on both
stocks and bonds was over 44 trillion VND; The "billion dollar". These are "record" figures

established on the stock market (Vietnam stock market) in 2017. Many experts said that the
growth of the stock market is a "bright spot" of the Vietnamese economy in 2017, even
surpassing the most active forecasts of the market launched at the beginning of the year.
According to data from the State Securities Commission, up to 19/12/2017, VN-Index
reached 951.42 points, up 43% from the end of 2016. HNX-Index closed at 111, 61 points, up
41.5% over the end of 2016. Before that, the VN-Index has exceeded 970 points - a record
number of nearly 10 years and perhaps the most optimistic ever thought of at the beginning of
the year. Experts predict that in 2018 Vietnam stock market will continue to make
breakthrough. (thoibao tai chinh Vietnam, 2018)
The stock market is considered typical and a fundamental characteristic of the economy of a
country. One can measure and project economic development through the evolution of the
stock market. The early stage of the stock market was hundreds of years old, and private
markets became a regular market with rules and regulations that all members must follow
when participation. It is the place where the goods traded and financial services.
As the development of joint stock companies became strong, the stock was born. Stocks
allow you to own a portion of a public corporation. The owners sell control of the company to
stockholders to gain additional funds to grow the company. This is called the initial public
offering. After the IPO, the stockholders can resell the shares on the stock market.
(KIMBERLY AMADEO, 2018). Stocks are a form where we can know who owns the
company and owns the shares of the company, thereby identifying who is the head of the
company. In addition, the company can bring profit to shareholders by buying back shares.
So stocks also play an important role for the companies.
In an economy, inflation is the devaluation of the local currency against other currencies.
Inflation can generally be understood as escalating prices of commodities and commodities
over time. It is an important factor in showing the macro economy in Vietnam. Commodities
will rise in price and as the value of goods and services increases, the purchasing power of
the currency will decrease. Then, with the same amount of money, consumers buy less goods

23

Đinh Thanh Huyền
Student ID: 17047720

than before. Inflation is measured by government statistics such as RPI (Retail Price Index)
and Consumer Price Index (CPI).

It is clear that CPI will continue to decline from 2011 to 2015 and that by 2016 it will raise
again and close to the government's 5% level, thus demonstrating that the government’s
control and management had active proactive.
In the financial market today, the indicators are a form of measurement. It shows how much
value, to what extent, how real. It is an intuitive representation of the status of a system that
helps managers and investors make predictions for their future intentions.

The role of the stock market
The stock market helps those who lack capital have the opportunity to raise capital, those
who have capital can convert into capital. Because of this, the stock market is also called the
capital market. According to the stock exchange market trading is divided into two categories
is the stock market and bond market. A bond is a debt instrument in which the issuer of the
instrument pays the loan in the form of both principal and interest. Bonds with definite terms
are medium or long term Stock is a certificate of ownership and legal interest in the net
income and assets of a shareholding company. There are two types of shares are preferred
stock and common stock. Investing in stocks does not simply return dividends, but if the
company's stock is bought; it is a market that is very trusting in the growth of the company
they invest in.

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