Liquidity of the corporate bond market in vietnam 1

Liquidity of the corporate bond market in Vietnam

Abstract: The paper has proposed three criteria to measure the liquidity of the bond market.
At the same time, the study also collects data and compares it with many countries around the
world. After analyzing and evaluating, the research has pointed out some key points that
cause problems related to liquidity. Finally, the paper proposed a group of solutions, which
emphasized the importance of enhancing information transparency in the market and the
appearance of reputable rating agencies.
Keywords: Vietnam corporate bond market, corporate bond, liquidity
1. Problem statement
Vietnam strives to bring the outstanding debt in the bond market to about 45% of GDP by
2020 and about 65% of GDP by 2030, of which the outstanding debt of the corporate bond
market will reach about 7 % of GDP in 2020 and about 20% of GDP in 2030 (Vu, 2016).
Up to now, the primary market of Vietnamese corporate bonds has recorded increasing
participation of businesses and credit institutions (Vuong and Tran, 2011). However, it is
easy to see the "gloomy" situation of the corporate bond market in recent years. Among the
many reasons explaining this situation, such as the limited access to corporate bond
information for investors, the underdeveloped credit rating system makes it impossible for
investors to be grounded. If bond prices are reasonable, etc., the liquidity of corporate bonds
is both a consequence and a cause of this situation (Vuong and Tran, 2011).
The article uses liquidity metrics for the bond market that are used around the world to
measure the liquidity of the Vietnamese corporate bond market. Calculation results are the
basis for coming to a conclusion about the liquidity of Vietnam's corporate bond market. At
the same time, the article also explains the current liquidity situation of Vietnam's corporate
bond market and proposes some solutions to increase liquidity for the current Vietnamese
bond market.
Research Questions:
1. What is criteria for measurement of liquidity of the corporate bond market in
Vietnam?
2. How these criteria helping out to conclude the situation of liquidity of the
corporate bond market in Vietnam?

2. Liquidity of corporate bonds: Measurement Criteria
There are many indicators used to measure liquidity in the bond market. Below is a summary
of commonly used indicators in the world that the research team has synthesized.


(i) Amihud Index (Amihud & Mandelson, 2015; Acharya et al., 2013): Measures the
correlation between price movement and trading volume.
(ii) Trading volume (IOSCO, 2018; Gur-Gershgoren & Authority, 2011; Eke et al.,, 2020; Li
et al, 2011; Mizrach, B., 2015; Akkharaphol Chabchitrchaidol et al, 2005): Volume traded
aggregated in each specific period of a corporate bond or the entire market.
(iii) Turnover Index (IOSCO, 2018; Bardsley et al., 2016; Roscovan, 2012; Houweling &
Van 2017): Measured by the quotient between the total volume of corporate bonds delivered
translation and volume of corporate bonds in circulation.
(iv) Average transaction size (IOSCO, 2018; Roscovan, 2012; Houweling & Van 2017): As
measured by total transaction volume divided for the number of trading days.
(v) Batch Trading Size (IOSCO, 2018; Acharya et al., 2013): The size of the transactions
carried out in large batches, in order to facilitate trading between institutional investors/ Big
investors get easier.
(vi) Measuring Price Influence (IOSCO, 2018; Acharya et al., 2013): Assessing the impact of
large lot transactions on price volatility. A highly liquid market is one in which the price of
corporate bonds is not significantly affected by large-lot transactions.
(viii) Measuring market-making activity (IOSCO, 2018): Taking into account the role of
intermediaries, especially market makers.
(ix) Number of transactions (Acharya et al., 2013): Number of transactions executed.
(x) Transaction costs (Acharya et al., 2013): The cost that investors have to pay for
transactions.
(xi) Composite Index (Autorite des Marches Financiers – AMF, 2015): Weighted average of
3 indicators: (i) Bid-ask spreads indicator (ii) ) Zero Return Indicator (iii) Price impact
indicator or Amihud index.
3. Method of measuring liquidity of Vietnam corporate bond market

3.1 Methods
Liquidity in the Vietnamese corporate bond market is measured in both the issuing market
(primary market) and the trading market (secondary market).
In the primary market, this study will focus on measuring 3 indicators as follows:
(i) Size of corporate bond issuance
(ii) Outstanding debt in the corporate bond market
(iii) Growth rate of corporate bonds in circulation


These indicators are calculated and compared between Vietnam's corporate bond market and
7 other countries: Thailand, Singapore, Philippines, Malaysia, Indonesia, Korea, and Japan.
In the secondary market, on the basis of the above research overview on the criteria to
measure the liquidity of the corporate bond market and the data that can be collected from the
Vietnamese market and comparison countries, research will focus on assessing the liquidity
of the corporate bond market in Vietnam based on the following two criteria:
(i) Trading volume and trading volume growth rate
(ii) Rotation coefficient
These indicators are calculated and compared between Vietnam's corporate bond market and
5 other countries: Thailand, Malaysia, Indonesia, Korea, and Japan. Particularly for the two
indicators calculated for the Vietnamese market, because there is no data related to the
corporate bond trading volume, the authors use the volume of government bonds traded
instead.
All 6 indexes will be calculated at the following times: March 2018; June 2018; September
2018; December 2018; March 2019; June 2019; September 2019; December 2019; March
2020; June 2020; September 2020.
3.2 Data
The study exploits the following data groups:
(i) Corporate bond issuance volume in Vietnam market and comparator countries.
(ii) Bond issuance volume (including corporate bonds and government bonds) of the whole
market in Vietnam market and comparison countries.

(iii) Government bond trading volume in Vietnam market
(iv) Corporate bond trading volume of comparable countries.
(v) Trading volume of bonds (including corporate bonds and government bonds) of the whole
market in the markets of the comparator countries.
(vi) GDP value of Vietnam and comparable countries.
4. Results
4.1 The scale of issuance of corporate bonds in Vietnam is still modest
As of August 2020, the scale of issuance of corporate bonds in Vietnam was only 6.45%
compared to 6.73% of Japan, 15.15% of Indonesia, 20.69% of the Philippines, 28 .35% of
Thailand, 39.50% of Singapore, 47.39% of Malaysia and 58.26% of South Korea. The market
debt balance is also at this time at only 1.48%, compared to 2.89% of Indonesia, 7.07% of the


Philippines, 14.21% of Japan, 21.33% of Thailand, 33.54% of Singapore, 46.30% of
Malaysia, and 73.24% of Korea.
It can be seen that Vietnam's corporate bond market has just reached a much lower scale than
the target set in the development roadmap of Vietnam's bond market to 7% of GDP by 2020
and 20% by 2030. more than 20% compared to the general level of the region.
However, in recent times, Vietnam's corporate bond market has experienced remarkable
development with an average growth rate higher than that of other countries in the region.
From September 2018 to September 2019, the value of corporate bonds issued in Vietnam
increased by 4.31%, from $104.35 billion to $104.67 billion. In the period from September
2019 to September 2020, the value of corporate bonds issued in Vietnam increased from
104.67 billion USD to 115.3 billion USD, the growth rate reached 28.20% - much higher than
Thailand (16.19%), Philippines (13.05%), Malaysia (12.42%) or Korea (5.73%). In fact, the
data on the Ho Chi Minh City Stock Exchange. Ho Chi Minh City shows that Vietnam's
corporate bond market currently records the active participation of many businesses. There
are more and more new issuers, even unlisted units such as Anco, TTC Edu... besides wellknown enterprises like Vingroup, CII, or HIFC (Linh 2020).
4.2 Liquidity in the secondary market of Vietnamese corporate bonds is very low
Finding out the reason for this situation, the research team found that there are 4 main groups

of causes as follows:
Firstly, the weakness of both supply and demand of corporate bonds. Regarding supply,
Vietnamese enterprises still maintain the habit of raising capital through bank credit because
they are not required to disclose information fully and rigorously like issuing bonds.
Therefore, most Vietnamese enterprises are still afraid of long-term capital mobilization such
as corporate bonds. For investors, corporate bonds are subject to great competition from
many fast-growing and profitable investment channels such as real estate and securities.
Second, there is a lack of reputable valuation/rating organizations and professional bond
issuance advisory organizations. According to statistics of the Asian Development Bank
(ADB) (2018), Vietnam currently does not have reputable credit rating and valuation
organizations. This causes difficulties in valuing debts in the debt trading process and also
limits the development of the corporate bond market because there are no certain
"benchmarks" for investors. and the bond issuer determines the appropriate bond price.
Investors only consider buying shares of businesses they trust, and many companies issue
bonds privately to strategic shareholders, not to the public.
Third, lack of market makers. In Vietnam's bond market, according to Decree 95/2020/NDCP stipulating the issuance, registration, custody, listing, and trading of government debt
instruments on the stock market, makers The market has a prominent interest in participating
in government bond auctions by the Ministry of Finance and other investors who want to buy
bonds must go through market makers. In addition, market makers can use information
extracted from the bond market information system of the Hanoi Stock Exchange. However,
also because the development level of the bond market in general and the corporate bond


market, in particular, is still low, participating in the market is accepted with a burden of
obligations (such as having to buy a large number of bonds every year). The government
often makes an offer to buy or sell bonds with a firm commitment, ...) and takes great risks.
Therefore, investors, especially institutional investors such as banks or securities companies,
are not "interested" in this role.
5. Conclusions and recommendations
It can be seen that the liquidity of Vietnam's corporate bond market in the period 2007-2020

has improved significantly. This is reflected in the positive movement of indicators
measuring liquidity in the market, including Trading Volume and Turnover Ratio. However,
when compared with other countries in the region and the issuance size of the market, it can
be seen that the liquidity of Vietnam's corporate bond market is very low in both the primary
market and the secondary market. The goal is to bring the outstanding debt of the bond
market to about 45% of GDP by 2025 and about 65% of GDP by 2030, of which the
outstanding debt of the corporate bond market will reach about 7% of GDP by 2020 and
about 20% of GDP by 2030, is really a big challenge for the whole financial market of
Vietnam (ABO 2021)
The above analysis shows that the liquidity of the corporate bond market is low mainly due to
reasons related to the competition of many fast-growing and profitable investment channels
such as real estate, securities as well as the limited legal document system, and especially the
lack of reputable valuation and rating agencies and professional underwriting consulting
organizations, and market makers. To improve the liquidity of the corporate bond market in
Vietnam in the coming time, according to the authors, it is necessary to implement a number
of solutions as follows. It is necessary to develop a plan to develop the corporate bond
market, according to which it is necessary to enhance transparency as well as promote
liquidity for the market, increase capital mobilization for the centralized market. Besides,
associated with the process of restructuring the stock market to have a solution suitable to the
characteristics of the Vietnamese market, reforming the issuance, developing the market
platform system, especially the information system. Second, to encourage and facilitate the
birth and development of credit rating companies for all corporate bond issuances. Third,
diversify investors and encourage the development of market makers in the corporate bond
market. Currently, the issuance of corporate bonds in Vietnam is mainly private placement
and the investors participating in the market are mainly organizations such as commercial
banks, securities companies.


References
1. Vo, A. 2016, “Vietnam-Human Capital as a Key Driver for Economic Growth-An

Investigation of Vietnam’s Economy and Binding Constraints Final Country Report”
Ann Vo (Final grade: A-), 4, 22.
2. Vuong, Q. H., & Tran, T. D. 2011, “Vietnam’s corporate bond market, 1990-2010:
Some reflections”, The Journal of Economic Policy and Research, 6(1).
3. Amihud, Y., & Mendelson, H. 1989, “Index and index-futures returns”, Journal of
Accounting, Auditing & Finance, 4(4), 415-431.
4. Acharya, V. V., Amihud, Y., & Bharath, S. T. 2013, “Liquidity risk of corporate bond
returns: conditional approach”, Journal of financial economics, 110(2), 358-386.
5. IOSCO 2016, “Examination of Liquidity of the Secondary Corporate Bond Markets”,
International Organization of Securities Commissions.
6. Gur-Gershgoren, G., & Authority, I. S. 2011, “Corporate Bond Market Liquidity in
Israel at Heterogeneous Trade Sizes”.
7. Eke, P. O., Adetiloye, K. A., & Adegbite, E. O. 2020, “An analysis of bond market
liquidity and real sector output in selected African economies”.
8. Lin, H., Wang, J., & Wu, C. 2011, “Liquidity risk and expected corporate bond
returns”, Journal of Financial Economics, 99(3), 628-650.
9. Mizrach, B. (2015). Analysis of Corporate Bond Liquidity. Opgehaald van
/files/OCE_researchnote_liquidity _2015_12.pdf
10. Chabchitrchaidol, A., & Panyanukul, S. 2008, “Key determinants of liquidity in the
Thai bond market”
11. Bardsley, K., Wimpenny, I., Wechsler, R., Shachaf, Y., Yang, Y., & El Haj, A. J.
2016, “Defining a turnover index for the correlation of biomaterial degradation and
cell based extracellular matrix synthesis using fluorescent tagging techniques”, Acta
biomaterialia, 45, 133-142.
12. Roscovan, V. 2012, “Bond Market Turnover and Credit Spread Changes”, Available
at SSRN 1343020.
13. Houweling, P., & Van Zundert, J. 2017, “Factor investing in the corporate bond
market”, Financial Analysts Journal, 73(2), 100-115.
14. Autorite des marches financiers (AMF). (2015). Study of liquidity in French Bond
Markets. Autorite des marches financiers (AMF).

15. Linh, N. 2018, “Waiting for the bounce of the corporate bond market. Opgehaald van
CAFEF”,
< />16. ABO 2021, “AsianBondsOnline - Viet Nam (2021)”, viewed 15 September 2021,
< />