Factors influence on the vni stock market and recommendations for foreign investors

2 BỘ GIÁO DỤC VÀ ĐÀO TẠO TRƯỜNG ĐẠI HỌC NGOẠI THƯƠNG *** BÁO CÁO TỔNG KẾT CÔNG TRÌNH THAM GIA XÉT GIẢI THƯỞNG “SINH VIÊN NGHIÊN CỨU KHOA HỌC” NĂM 2023 FACTORS INFLUENCE ON THE VNI STOCK MARKET AND REC[.]

-*** -BÁO CÁO TỔNG KẾT CÔNG TRÌNH THAM GIA XÉT GIẢI THƯỞNG “SINH VIÊN NGHIÊN CỨU KHOA HỌC”

NĂM 2023

FACTORS INFLUENCE ON THE VNI STOCK MARKET AND RECOMMENDATIONS FOR FOREIGN INVESTORS

Thuộc nhóm ngành: Khoa học tự nhiên

-*** -BÁO CÁO TỔNG KẾT CÔNG TRÌNH THAM GIA XÉT GIẢI THƯỞNG “SINH VIÊN NGHIÊN CỨU KHOA HỌC”

NĂM 2023

FACTORS INFLUENCE ON THE VNI STOCK MARKET AND RECOMMENDATIONS FOR FOREIGN INVESTORS

Bùi Thị Thùy AnPhạm Ngọc AnhNguyễn Đặng Hoài ThươngNguyễn Đào Ngọc BíchDân tộc: Kinh

Ngành học: Kinh tế đối ngoại

Người hướng dẫn chính: Tiến sĩ Nguyễn Quỳnh Hương

Abstract iii

LIST OF ABBREVIATIONS iv

LIST OF TABLES v

CHAPTER 1 INTRODUCTION 1

1.1 Reasons for choosing the topic 1

1.2 Research question 2

1.3 Objectives of the study 2

1.4 Object and scope of the study 2

1.5 Research Methods 2

1.6 Research Significance 2

1.7 Research structure 2

CHAPTER 2 LITERATURE REVIEW 3

2.1 Background theory 3

2.1.1 VN-Index: 4

2.1.2 Interest rate (%, IR) 5

2.1.3 Exchange rate (%, Exc) 5

2.1.4 Index of industrial production ( %, IIP) 5

2.1.5 Money supply 2 (billion VND, MS2) 6

2.1.6 World oil price (USD, OP) 7

2.1.7 World gold price (USD/Oz, GoldEx) 7

2.1.8 Treasury bills of the Vietnamese government (USD, RF) 7

2.1.9 Foreign Direct Investment (million USD, FDI) 8

2.1.10 Consumer Price Index (%, CPI) 8

CHAPTER 3 METHODOLOGY & DATA 9

3.1 Data 9

3.2 Methodology 10

CHAPTER 4 RESULTS 18

4.1 Checking for multicollinearity by the correlation coefficient 18

4.2 Checking for heteroskedasticity 19

4.3 Checking for hypothesis 20

4.4 Time series regression 22

CHAPTER 5 CONCLUSION 24

5.1 Summary of the research process and results 24

5.2 Limitations of the study and further directions for future research: 25

5.2.1 Limitations of the study 25

5.2.2 Further directions for future research: 26 REFERENCES I APPENDIX: DATA DISPLAY V

One of the few sectors with a higher potential for growth than others is the stock market,both generally and in Vietnam particularly, and it has made some notable advancementsconsidering the Covid-19 pandemic International investors will benefit greatly from using theresearch on the effects of macroeconomic factors on stock prices in the Vietnamese stockmarket, the VNIndex, which displays the pattern of price movements for all stocks listed on theStock Exchange, the HOSE stock exchange, or Ho Chi Minh City Stock Exchange in the periodbefore and after the Covid-19 pandemic A source of reference for the government, domesticinvestors, and particularly foreign investors to get more evidence on which factors directly orindirectly affect the stock market environment, the research focuses on the period from01/01/2012 to 31/12/2022, and results drawn from the actual situation of factors affecting theprice of shares listed on the Vietnamese stock market The characteristics of Vietnam's stockmarket, with a large capitalization of companies in the oil sector, and the structure of Vietnam'seconomy, with export heavily dependent on the FDI sector, are to suspect of the differences inthe regression results on the impact of exchange rate and oil price

LIST OF ABBREVIATIONS

LIST OF TABLES

Table 1: Expected effect of the variables on VNI flatform in Vietnam stock marketTable 2: Table of correlation between variables

Table 3 Stata results of time series regression, full set of variables

Table 4 Stata results of time series regression during Covid, full set of variables

CHAPTER 1 INTRODUCTION

1.1 Reasons for choosing the topic

The stock market, both globally and in Vietnam specifically, is one of the few industrieswith greater potential for development compared to others and has made a number ofnoteworthy strides in light of the Covid-19 pandemic

Regarding worldwide stocks and those of other nations in the area, Vietnam's stockmarket is still essentially on par with the global market, but with a minor lag Despite theCovid epidemic's impact on Vietnam's economy, the stock market has been able to growsteadily, and go deeper, with stability and high specialization during this challenging period.Vietnam's stock market is a frontier market with rapid development and a solid economic base,indicating that it might be a prospective investment channel for foreign investors

Stock markets in different countries will have different influencing factors The stockmarket in Vietnam has fluctuations from time to time Therefore, foreign investors must always

be aware of the factors affecting stock prices so that they can make profitable investmentdecisions and limit risks Many economic conditions have an impact on investor profit or losseither directly or indirectly These elements can forecast how it may affect investors' returns

As a result, for many years, the factors affecting stock prices have always been the topic offinancial researchers as well as investors in general and foreign investors in specific

The research on the impact of macroeconomic factors on stock prices in the Vietnamesestock market, particularly the VNIndex, which displays the pattern of price movements for allstocks listed on the Stock Exchange, the HOSE stock exchange or Ho Chi Minh City StockExchange in the period before and after Covid-19 pandemic will be highly beneficial forinternational investors to utilize as a source to make the appropriate decision about whether ornot to pour capital flow into investing stocks in the Vietnamese market

1.2 Research question

- What factors affect the stock price?

- What level of impact do economic indicators have on share prices?

- How did VNI perform during Covid-19?

- Is Vietnam an attractive place to make investments?

1.3 Objectives of the study

- Find models that explain how economic conditions affect stock market pricing

- Test the model's performance and the effect of economic data on stock prices

1.4 Object and scope of the study

- Research object: macroeconomics factors affecting the stock market price of VNIndex

- Scope of the study: research focuses on the period from 01/01/2012 to 31/12/2022

1.5 Research Methods

The study utilizes two main methods, which are qualitative and quantitative methods:

- Qualitative method: Based on previous studies and theoretical basis system to identifyinfluencing factors and their impact on stock prices of companies listed on VNIndex

- Quantitative method: observations recorded as numbers, database, secondary research

1.6 Research Significance

Research results drawn from the actual situation of factors affecting the price of shareslisted on the Vietnamese stock market will be a source of reference for the government,domestic investors, and especially foreign investors to get more evidence on which factorsdirectly or indirectly affect the stock market environment

1.7 Research structure

The structure of this study is divided into five main chapters:

- Chapter 1: Introduction

- Chapter 2: Literature review

- Chapter 3: Methodology and Data

- Chapter 4: Results

- Chapter 5: Conclusion

CHAPTER 2 LITERATURE REVIEW

2.1 Background theory

More papers that investigate components using the OLS regression model have been

discovered in recent years Hanif and Bhatti (2019) accurately described the correlation, unit

solution, OLS regression, and Granger test of variables The author has specifically gatheredeight macroeconomic variables in Pakistan, including gold prices, industrial production,inflation, money supply, interest rates, and remittances from Islamic and stock markets Thestudy's time frame is July 2011 to October 2016 According to research findings, there is nocorrelation between the two categories of stock indexes over the short term While gold pricesand exchange rates have little impact on the domestic stock index, industrial production and theamount of money in circulation have a significant impact on the price of securities

We are indeed interested in empirical research that has been done on Vietnam's new

stock exchanges According to one the research conducted by Hussainey and Khanh Ngoc

(2009), there is a subtle connection between variables like domestic manufacturing, the money

market, and stock prices in Vietnam

Also, DAO et al (2022) have examined the impact of macro factors on Vietnam's stock

market in the short and long run from 2010 to 2021 through the ARDL model In the long run,the money supply had a positive effect on the VN-Index, while the exchange rate had theopposite effect In the short term, interest rates and exchange rates had a negative impact, whilethe world oil price and the fluctuation of money supply M2 had an impact in the same

direction The differences in the regression results on the impact of exchange rate and oil priceare due to the characteristics of Vietnam's stock market, with a large capitalization ofcompanies in the oil and gas sector, and the structure of Vietnam's economy with exportheavily dependent on the FDI sector.

Acquiring prior outcomes and proceeding with the application to the Vietnamese stockmarket by identifying the gap left by recent research The OLS model and hypotheses will bespecifically examined and applied in this paper

2.1.1 VN-Index:

VN-Index is an index representing all stocks listed and traded on HoSE since the stockmarket came into operation The index is based on the market value weighting method, which

is based on the dominance of each stock used

VN-Index has an initial base value of 100 points and the base date is the first day ofofficial market operation on July 28, 2000

The VN-Index is calculated as follows:

VNIndex =( Totaloriginal market value Totalcurrent market value ) x 100

P1i: Is the current market value of stock i

Q1i: Number of shares i listed at the moment

P0i: Market value on the base date of 28/07/2000 of stock i

Q0i: Number of shares i listed on the base date

2.1.2 Interest rate (%, IR)

The rate that the borrower pays to the lender for the money they borrow Interest ratesexert a widespread effect on economic decisions and the performance in the economy Theyimpact the willingness to save the demand for and distribution of borrowed funds Along withforeign interest rates, anticipated changes in the exchange rate, and the expected rate ofinflation, they eventually determined the distribution of accumulated savings between domesticand foreign financial assets and physical assets

2.1.3 Exchange rate (%, Exc)

The rate at which one currency will exchange for another is known as the exchange rate

It is also regarded as the value of a country's currency expressed in another currency.Compared to other currencies, the USD is most commonly used and used by most businesses ininternational payment contracts Exchange rate data collected from the website of the StateBank, taken from the exchange rate between USD and VND, this Variable represents theforeign exchange market

2.1.4 Index of industrial production ( %, IIP)

The total amount of production activity that happens in the country during a particularperiod as compared to a reference period The index of industrial production is a crucial metricfor assessing the prosperity of many industries and the economy It comprises importantindustries including manufacturing, mining, electricity, etc

2.1.5 Money supply 2 (billion VND, MS2)

The total amount of money—cash, coins, and balances in bank accounts—in circulation

is known as the money supply The money supply is typically understood as a collection ofsecure assets that individuals, businesses, and governments can use to make payments or hold

+ M1: the total of money held by the public and transaction deposits at depositoryinstitutions (which are financial institutions that obtain their funds mainly throughdeposits from the public, such as commercial banks, savings and loan associations,savings banks, and credit unions)

+ M2 consists of M1 plus savings accounts, small-denomination time deposits (thoseissued in quantities under $100,000), and retail money market mutual fund shares

A precise measurement of the real quantity of money will be chosen based on themeasurement of the amount of money that best aids in predicting the best economic variables,

on which the value of the currency has an equal impact to the inflation rate and business cycle.Most nations employ M1 or M2 We only examine M2 in our study since M2 is a largermeasure of the money supply than M1, which only includes cash and bank accounts M2 isextensively monitored as a measure of the money supply and anticipated inflation, as well as a

target for central bank monetary policy Furthermore, in Vietnam MS2 is mostly used when itcomes to research and measurements.

2.1.6 World oil price (USD, OP)

The global price of crude oil is the price at which oil is traded worldwide, and it isdetermined by a variety of factors, including supply and demand, economic conditions,geopolitical events, and other factors that impact the global oil market Brent crude and WestTexas Intermediate (WTI) crude are the most commonly traded benchmark crude oils used toset the price for most of the world's oil Oil prices are usually quoted in US dollars per barreland have a significant impact on the global economy because they affect the cost oftransportation, manufacturing, and other industries that rely on oil Consequently, changes inworld oil prices can create a ripple effect throughout the global economy

2.1.7 World gold price (USD/Oz, GoldEx)

World gold price is the rate of exchange for gold on the international gold market and isused as a crucial measurement for this global market, whereas gold prices in one nationalmarket are essential to other nations’ markets Gold is a practical resource that can be counted

as a currency since it full-fil three binding competencies: relating to cash or money, being onetype of commercial resource endowments, and non-creation resources The features of theworld gold price create valuable resources for financial investors and cross-border governmentsthus world gold price become an essential part of global economic integration

2.1.8 Treasury bills of the Vietnamese government (USD, RF)

Treasury bills of the Vietnamese government, also known as T-bills, are short-termgovernment securities issued by the State Treasury of Vietnam on behalf of the government.These securities have a maturity period of less than one year, typically ranging from threemonths to 12 months, and are sold at a discount to face value T-bills are considered to be one

of the safest investments available in Vietnam, as they are backed by the full faith and credit ofthe government The interest rate on T-bills is determined through an auction process, with the

government setting a maximum yield for the auction Investors then bid on the T-bills, with thehighest bidders receiving the securities at a discount to face value Investors in T-bills aretypically financial institutions, corporations, and individual investors looking for a safe place topark their money in the short term T-bills are also used as a tool by the Vietnamesegovernment to manage its short-term funding needs and to support liquidity in the financialsystem T-bills are actively traded on the secondary market, providing investors with theopportunity to buy and sell these securities before they mature This secondary market activitycan also provide investors with an indication of market sentiment towards the Vietnameseeconomy and the government's fiscal policy Overall, T-bills are an important component ofVietnam's financial system, providing a safe and reliable investment option for both domesticand foreign investors.

2.1.9 Foreign Direct Investment (million USD, FDI)

The investment coming from a cross-boundary investor residing in one economy builds

up long-term benefits and primarily puts an impact on the invested enterprise residing inanother economy Foreign Direct Investment is a crucial component in global economiccohesion since it forges strong, long-lasting ties between nations' economies The existence ofFDI enables economic connection between countries, establishing global integration andprovokes technology emerging from one economy to one another, and also promotes economicdevelopment The metrics of FDI include inflow and outflow stocks, cash flows, interests, andearnings, counted by alliance industry or country and followed by FDI constraints

2.1.10 Consumer Price Index (%, CPI)

The Consumer Price Index (CPI) is an economic indicator that measures the averagechange over time in the prices paid by urban consumers for a fixed basket of goods andservices It is a crucial tool for economic policymakers, businesses, and investors to understandinflation and its impact on the economy The CPI is calculated by collecting and analyzingprice data for a representative sample of goods and services commonly purchased by urbanhouseholds It is widely used to track inflation and its potential impact on consumers'

purchasing power and businesses' profitability Moreover, high inflation can lead to increasedinterest rates, which can affect the overall economy Hence, CPI plays a crucial role inmonetary policy, investment strategy, and financial decision-making.

CHAPTER 3 METHODOLOGY & DATA

3.1 Data

TABLE OF VARIABLES

dung.htm

IR Interest rate,

%

- Bui Kim Yen and Nguyen Thai Son( 2014)

stated that there was a negative correlate between interest rate and stock market

Peiró( 2016) found that interest rates had a

negative impact on stock price

Hypothesis 1: Interest rate (IR) negatively

influences stock index (VNI)

rate,VND/USD,

%

+ Hock Tsen Wong (2021) An increase in the

positive real exchange rate will lead to an increase in real stock prices in the long run

Phylaktis and Ravazzolo (2000) conclude that

exchange rates and stock markets are positively correlated

Hypothesis 2: Exchange rate (ER) positively

influences stock index (VNI)

industrial

production,

%

+ Shanken and Weinstein (2006) concluded

that only IIP is the significant factor for stockmarket

Humpe and Macmillan (2009) analyze stock

prices that were influenced positively by industrial production

Hosseini, Ahmad, and Lai (2011) stated that

industrial production had a positive effect on stock market returns

Hypothesis 3: Index of industrial production

(IIP) positively influences stock index (VNI)

MS2 Money

supply M2,

billion VND

+ Anh Thu and Thanh Duong (2020)

conducted a study that found that money supply growth shows a positive effect

Research results are consistent for the crisis period and during and after the crisis

pre-Thanh et al., (2017) stated that the money

supply has a favorable effect on the stock market index This finding is consistent with earlier studies on the relationship between money supply and the stock market An increase in money is a requirement for creatingredundancy in total payment methods This is also a condition that causes cash flow to pour into the stock market, causing the stock price index to rise

Hypothesis 4: Money Supply (MS2)

positively influences stock index (VNI)

price,

+

Paresh Kumar Narayan et al., (2009) found

that stock prices and oil prices share a run relationship The positive relationshipbetween stock prices and oil prices wasattributed to internal and domestic factors such

long-as increlong-ased foreign portfolio investments,changing local market participant preferences,and leveraged investments in stocks, whichhad a more dominant impact on theVietnamese stock market than the rise in oil

Tra Ngoc Nguyen et al., (2020) also found

that historical oil prices have a positive effect

on Vietnamese stock market indices andperformed robustness tests to confirm theconsistency of the impact of oil prices

Hypothesis 6: World oil price (OP) positively

influences stock index (VNI)

price,thousandUSD/Oz

+/- Sadiq et al., (2022) research result in the

positive influence of World gold price on thestock market The result of the 12- and 60-month research of the authors also found thatgold price shocks caused a more significantincrease in stock values

Sh Zeinedini et al., (2022) the authors stated

that the global gold prices caused a positiveeffect on the stock price indexes relating to thetiming period before and after the pandemiccrisis

Trương Đông Lộc (2014) research come to

the conclusion that the stock price marketnegatively responds to the world gold price byregression analysis during the period from

2006 to 2012 on HOSE The results of thisinverse correlation are consistent withprevious studies in the stock market, however,

it has limitations as it can only be applied toemerging securities.

Hypothesis 7: World gold price (GoldEx)

could be positively and negatively influencesstock index (VNI)

relationship between Treasury bills and stockprices in Vietnam from 2006 to 2010 andfound evidence of a long-term relationshipbetween these two variables, suggesting thatinvestors in Vietnam consider Treasury billrates when making investment decisions in thestock market The findings suggest that anincrease in Treasury bill rates is associatedwith a decrease in stock prices, and vice versa

Huu Nguyen, A., Minh Thi Vu, T and Truc Thi Doan, Q (2020) used Granger causality

tests and vector autoregressive models Theresults suggest a bidirectional causalrelationship between treasury bill rates andstock prices, indicating that changes intreasury bill rates lead to changes in stockprices and vice versa However, the impact oftreasury bills on stock prices is found to bestronger and more persistent than the reverse

Hypothesis 8: Treasury bills of theVietnamese government (RF) negatively