VN-Index: The key to understanding the Vietnamese stock market

The 24-Year Journey of an Index

Since its first trading session on 07/28/2000, the VN-Index has become a true reflection of Vietnam’s economy. This index not only records the ups and downs of the market but also preserves every step of the development of the country’s largest stock platform.

In 2006, when Vietnam joined the WTO, the market experienced a hot growth phase. A year later, the VN-Index nearly quadrupled thanks to stimulus programs and IPOs of state-owned enterprises. However, the 2008 global financial crisis drove this index to its lowest point.

After a recovery period from 2009, 2019 brought pressure from US-China trade tensions. The situation truly reversed when COVID-19 appeared: the index dropped 31% in early 2020 but then recovered strongly thanks to government support policies. Q1/2022 peaked with a 25.24% increase, but from mid-2022 to 07/2023, the Fed’s rate hike cycle pushed the index down. In 2023, the VN-Index recorded a performance of 15.78%, corresponding to 13.36% of the Dow Jones.

What is the VN-Index? The simplest definition

The VN-Index is the overall representative index of the Vietnamese stock market, calculated based on the total market capitalization of all listed companies on the Ho Chi Minh City Stock Exchange (HOSE).

To visualize: if the VN-Index is at 1,203 points as of 04/26/2024, it means the market value has increased 12.03 times compared to the starting date of 07/28/2000. It functions similarly to the Dow Jones in the US—a comprehensive indicator of the health of the financial and economic system.

Besides the VN-Index, the market also has the HNX Index (sàn Hà Nội) and Upcom Index, but HOSE remains the largest and most representative exchange.

Calculation formula and practical significance

The VN-Index is calculated using the Paasche price index method, with the formula:

Index = (Current market capitalization / Market capitalization on base date) × Base points

This formula allows investors to quickly grasp three key factors:

1. Investor sentiment: When the VN-Index rises, it reflects optimism and capital inflow into the market. Conversely, declines indicate pessimism and capital withdrawal. These fluctuations are early signs of changes in investment decisions.

2. Macroeconomic conditions: The index indirectly reflects factors such as fiscal policy, corporate performance, inflation rates, and growth prospects. It can be viewed as an early forecasting tool for the overall economic situation.

3. Accumulated performance: Comparing the VN-Index across periods shows whether the market is creating value. Over 12 years from the 2009 bottom, it increased by more than 550%, averaging 45% annual growth.

Comparison: VN-Index and international indices

When compared to indices like S&P 500, Dow Jones, or Nasdaq, the VN-Index shows clear differences:

In terms of scale: The Vietnamese stock market is still young compared to long-established markets in the US. Foreign capital attraction is relatively limited due to higher risks, less flexible trading mechanisms (like T+2), and restrictions on foreign investor activities.

In terms of growth rate: However, in terms of growth speed, the VN-Index stands out in the Asian region. The 550% increase over 12 years far exceeds many mature markets, making Vietnam an attractive destination for investors seeking opportunities in emerging markets.

In terms of safety: The US market is still considered safer and more reliable. But if you accept higher risks, the VN-Index offers higher return opportunities.

VN-Index vs VN 30: What’s the difference?

These two indices are often confused, but they have core differences:

Scope: The VN-Index includes all listed companies on HOSE, while VN 30 tracks only the 30 largest-cap companies.

Accuracy: Since VN 30 tracks only 30 companies but these account for over 80% of the total market capitalization, it more accurately reflects market fluctuations than the VN-Index (may be influenced by smaller-cap companies).

Application: VN 30 is often used as a basis for developing investment fund products or derivative instruments.

Both are important, but the VN-Index provides a more comprehensive market representation.

Top 10 companies shaping the VN-Index

These major names are the “leading forces” driving the VN-Index:

The finance sector (banks) remains the main pillar of the VN-Index.

Opportunities and challenges of the VN-Index today

The Vietnamese stock market is in a “early mature” stage. The decline in 2022 (9 months consecutive drop to 960-980 points) is not a bad sign—it’s actually an opportunity for long-term investors to “pick up” quality stocks at reasonable prices.

Limitations to note:

• The VN-Index calculation method is based solely on total market capitalization and does not account for “free float” (publicly tradable shares).
• High-weight stocks can “dominate” the index excessively.

Strengths:

• Outstanding growth rate compared to other markets
• Increasing participation of foreign investors
• Vietnam’s economy ranks in the top 20 contributing significantly to global GDP growth

Conclusion: The VN-Index is worth paying attention to

After 24 years of operation, the VN-Index is not just a number on a screen. It is a symbol of a maturing market and an economy seeking deeper integration with the global community. Despite some limitations, with a 550% increase over the past 12 years, VN-Index proves that Vietnam’s stock market is an attractive destination for both domestic and international investors, as long as they understand the mechanisms and are willing to wait for long-term opportunities.