BAFI3182 - Financial Markets- Assignment 3 - Nguyen Do Doanh - s3773985 PDF

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Subject code: BAFISubject Name: Financial MarketsLocation & Campus RMIT Vietnam, HCMC Student Name : Nguyen Do Doanh Student Number: SLecturer’s Name: Ms. Chau NguyenWord Count Part A: 1980 wordsPart B: 464 wordsAssignment 3Individual research projectTABLE OF CONTENTPART A: RESEARCH PAPER 3I. In...

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Subject code:

Subject Name: Location & Campus Student Name :

BAFI3182

Financial Markets RMIT Vietnam, HCMC Nguyen Do Doanh

Student Number:

S3773985

Lecturer’s Name:

Ms. Chau Nguyen

Word Count

Part A: 1980 words Part B: 464 words

Assignment 3

Individual research project

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TABLE OF CONTENT PART A: RESEARCH PAPER I.

Introduction

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The status of the equity market before the COVID-19 crisis.

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III. The impact of Coronavirus pandemic and the rebound on the equity market.

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IV.

Conclusion

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V.

Limitation

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VI. References

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PART B: REFLECTION ON THE INDUSTRY TALK

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_______________________________ PART A: RESEARCH PAPER THE IMPACT AND THE RECOVERY OF THE US AND VIETNAM EQUITY MARKET DURING THE COVID-19 _______________________________

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Abstract The main objective of this research paper is to evaluate and analyze the effect of Coronavirus on the stock/equity market in the United States and Vietnam. In particular, the article will focus on three main parts: the background information of the equity market in the US and Vietnam before the COVID-19 happened; and the consequences of the spread of COVID-19 on those countries' equity market followed by the recovery of those two equity markets during this crisis.

I. Introduction There is no denying that the Covid-19 has affected negatively on more than 200 countries around the world in both the health and economic aspect from the beginning of 2019 until now. The spread of the coronavirus crisis led to a global recession and the financial and commodity markets were destabilized. Based on the estimation of International Monetary Fund (IMF), the fall in global GDP in 2020 will be the biggest fall since the Great Depression (IMF, 2020) and the equity market is no exception. The equity market is impacted heavily due to the coronavirus crisis since it caused slow economic growth and a shortage of capital inflows (Mert Topcu, 2020). According to Boone L. (2020), most global equity markets have significantly fallen in March 2020 and the international financial institutions have to cut their growth forecast for 2020 and beyond. This research paper will provide and discuss the impact of COVID-19 on the equity market in two different regions, the United States and in the Vietnam market and the policies of the Government and corporations in each country in order to rebound the market. The paper will divide into two main different parts, the first part will introduce the status of the US and the Vietnam equity market before the coronavirus pandemic happens. The second part will present the consequences of COVID-19 on the equity market of the US and Vietnam and the recovery of each country during the pandemic. Moreover, the paper will also discuss the limitations of the research such as the shortcomings, conditions or influences that cannot be controlled.

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II. The status of the equity market before the COVID-19 crisis. a) The US Equity market. The equity market in the US is the largest market size in the world since it held around 54.4% of world stock in 2020 (Statista, 2020). According to Sunil D. (2021), the US equity market has great attraction to all global companies like China, Japan and other developed countries in the world since its has all essential requirements such as the high volume trading, the large market capitalization of the stock which providing liquidity; moreover, the regulations on financial markets are transparent but strict. In addition, the US is also the largest stock exchange in the world with the two largest stock exchanges, the New York Stock Exchange and the Nasdaq. These two stock exchanges make up 46% of the world exchanges and have the total market value around $41.17 trillion in over $89.5 trillion in the world (Aran Ali, 2020). The US stock market before the coronavirus pandemic occurs was remarkable, especially in 2019. According to Sergei K. (Forbes, 2020), the equity market in America in 2019 was magnificent because the major indexes reached many record highs as stocks posted a profit annual was the best in six years. In details, the S&P 500 and Nasqua rose significantly by 29% and 35% in 2019, which was the best annual return of them since 2013; There were three main reasons which led to the increase of the equity market in the US in 2019. Firstly, the signing of several new trade agreements by the end of 2019, which included the renewal of the North American Free Trade Agreement with Canada and Mexico to replace NAFTA (Forbes, 2020). The next reason was due to the help of Federal Reserve’s policies. According to Al Lewis (CNBC, 2019), The Federal Reserve had lowered the interest rate three times compared to 2018, which was 2.5% at the end of 2018, and this reduction in interest rates was attractive to the investors. Thirdly, the decrease in tension between the US and China which followed by the agreement in trading negotiations, boosted the equity market around the world (CNBC, 2019).

b) The Vietnam Equity market. Unlike the US market, the Vietnam stock market is known as the frontier market according to MSCI classification in 2020. According to VietnamPlus (2020), the stock market in Vietnam was only established for 20 years with the first trading session held by the HoSE on July 28, 2000. There were only two public companies in the beginning of the trading

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session in 2000, which were REE and SAM; after 20 year of establishment, with many wellknown and actively traded firms: VinGroup, Vinamilk or Vietcombank, the Vietnam equity market is becoming more attractive to investors with more than 700 stocks listed and traded on the equity market with two biggest stock exchanges in Vietnam, The Ho Chi Minh Stock Exchange (HoSE) and Hanoi Stock Exchange (HNX) with the total market capitalization is around $146.5 billion. With the strong growth in GDP, Vietnam and the stock exchanges itself are becoming one of the investment destinations chosen by many investors in Asia and around the world (MovetoAsia, 2019) According to the Fiin Group Report (2020), 2019 was considered as the unattractive year for the investors in the Vietnam stock market since the benchmark VN-Index on HoSE slightly increased 7.7% from 892.54 points in 2018 to 960.99 points in 2019 (Vietnamnews, 2020). Although there was an increase between 2018 and 2019, the securities experts and investors still considered 2019 was not attractive in terms of volatility due to the expectation of them in the market performance when Vietnam has had strong macroeconomic fundamentals in recent years (Fiin Group Report, 2020). Nevertheless, there was still a bright spot in 2019 in the Vietnamese equity market. According to the Vietnam Securities Depository (2020), with the increase of liquidity helps the benchmark index of VN had reached the highest peak in the record of 1204.33 points in April.

III. The impact of Coronavirus pandemic and the rebound on the equity market. a) The US equity market.  The impact of COVID-19 According to the WHO (2021), until 15 January 2021, there have been more than 22 million confirmed cases of COVID-19 with nearly 400.000 deaths in the United States and those numbers are continually increasing day by day. From this data it shows that the United States is the country most affected by COVID-19 which created the fall of the US economy and the equity market in 2020 with 10.7 million people losing their jobs. According to Josue Cox (2020), The US stock market has experienced a 34% decline from February 19 to March 23 in 2020; the Standard & Poor and Dow Jones’s share value of those two corporations also decreased by 20% in the same period, this was their sharpest fall since

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the Financial Crisis in 2008 (MDPI, 2020). Moreover, many stock exchanges had to close due to the spread of this virus in March, including the NYSE and Nasdaq. The fall in the stock market had affected many big corporations such as Amazon and Apple Inc. and crashed many small and medium businesses in the United States. The effect of COVID-19 is negatively impacting the US economy and the equity market since it lowers the market stability and liquidity (Baig et al, 2020).

 The rebound of equity market However, the equity market in the US has recovered quickly in the next few months, rose 52% from the bottom in March 23 to August 10 (Financial Times, 2020) after the falling in the market due to the right policies of the Fed and the US Government. According to Brookings (2020), the role of the Fed is very important to rebound the economy since the Fed has purchased trillions of long-term securities in order to restore market functions smoothly so credit can continue to flow. Furthermore, the Fed also offered to all securities firms with a very low interest rate 0.25%. On the other hand, the NYSE and Nasdaq made their action to support the investors and issuers such as suspending certain further listing requirements and allowing non-compliant listing firms additional time to restore compliance (K&L Gates LLP, 2020). In addition, with the development of the Covid-19 vaccine, experts and investors have an expectation on the bright future on the equity market.

b) The Vietnam equity market  The impact of COVID-19 According to WHO (2021), until 16 January 2021, around 1,500 confirmed cases of COVID-19 that have been reported with 35 deaths. Those numbers are remarkable when Vietnam has a border close to China, the world's first country with COVID-19 outbreak, and Vietnam has also a limitation of resources, compared to the US or other European countries. The Vietnam Government has made high efforts to prevent and reduce the spread of COVID19 such as lookdown the nation’s border, cancelled and limited all international and domestic flights during the pandemic (ABC News, 2020). Although the Government responded on the COVID-19 very fast and made efforts to prevent it, the country's economy, including equity market, is still affected heavily due to this pandemic since million Vietnamses has lost their jobs and thousands of firms had to announce bankrupt.

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According to Journal of Economics Studies (2020), most of the stock prices on Vietnam securities had decreased in the first three months of 2020. Moreover, at the trading session at the end of March 2020, the VN-INDEX had fallen sharply by 31%, compared to the end of 2019, this has led to the loss of $37.5 billion of equity market capitalization (Christopher G., 2020). In details, the benchmark VN-INDEX on the HoChiMinh Stock Exchange has decreased by 80 points (around 5.5%), increasing the decrease since January 28 to more than 180 points (VietnamNews, 2002) .

 The rebound of equity market However, the Vietnam stock market continued to be active during the nation lookdown since the Ministry of Finance and State Securities Commission still persist in the point of not stopping the market, minimizing administrative intervention in the market, this wise decision helped the market have developed smoothly and strongly recovered. According to Bloomberg (2020), since the Vietnam Government declared that the coronavirus was under control, the Vietnam stock market has recovered quickly. Moverover, the Vietnam equity market was considered as the best market performance in global and Asian equity markets in both April and May 2020 (Giang N. & Yap L., 2020). In addition, on the HoSE, 55% of the total stocks listed showed positive performance despite the slowdown in the domestic market during the middle of 2020 (VietnamNews, 2020). As of November 2020, total equity market capitalization reached more than 6.11 million billion VND - the highest level ever, accounting for 101.33% of GDP, exceeding the target of 70% of GDP set out in the equity market development strategy to 2020. With the strong recovery of the equity market and the record low interest rates, the cash flow has strongly flowed into the securities investment channel. (Van Giap, 2020).

IV. Conclusion Overall, the impact of the coronavirus pandemic on the world economy is very serious and it still affects many countries since the new cases confirmed and deaths are still increasing day by day. Many industries and markets, including the equity market, have declared that they are facing the most difficult time since the Financial Crisis in 2008 when all indexes plunged. The COVID-19 pandemic has also impacted heavily on the equity

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market in the US and Vietnam since its slower economic growth and a shortage of capital inflows (Mert Topcu, 2020). Both stock markets had experienced the worst fall in the record since the Great Recession. However, thanks to the right and wise policies and move of the US and Vietnam Governments, the equity market in these countries has recovered quickly and has increased better than before the coronavirus happened.

V. Limitation The limited amount of words is a difficulty for myself as I have to carefully select the information that I have acquired during my research on this topic. Therefore, I have not analyzed in-depth the impact of COVID-19 on the US and Vietnamese equity markets. In addition, the identification of reliable information sources is also a limitation of this research since it may use several unreliable sources.

VI. References Han Tan, 2020, “The Importance of Equity markets”, FX Empire, viewed 12 January 2021

Aran Ali, 2020, “The World’s 10 Largest Equity markets”, Visual Capitalist, viewed 12 January 2021 .

Statista, 2020, “Distribution of countries with largest equity markets worldwide as of January 2020, by share of total world equity market value”, Statista, viewed 12 January 2021

Sergei Klebnikov, 2020, “Here’s How 2019 Turned Out To Be A Historic Year For The Equity market”, Forbes, viewed 12 January 2021

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Al Lewis, 2020, “The equity market boomed in 2019. Here’s how it happened”, CNBC, viewed 13 January 2021, . VNA, 2020, “20 years of Vietnam’s equity market”, Vietnamplus, viewed 13 January 2021

Rondan G., 2020, “Guide to Invest in Vietnam stock exchange & trading”, MovetoAsia, viewed 13 January 2021 . Linh Anh, 2020, “Brighter outlook for VN equity market but risks abound”, VietnamNews, viewed 13 January 2021

Colby Smith, Richard Milne & Adam Samson, 2020, “US stocks set record after powerful rebound from March low” , Financial Times, viewed 13 January 2021,

Sean M. Jones, Patrick J. Rogers & Darina A. Koleva, 2020, “COVID-19: NYSE and Nasdaq Relax Listing Requirements in Response to Volatile COVID-19 Economy”, LEXOLOGY, viewed 14 January 2021

IMF, 2020, “World Economic Outlook, April 2020: The Great Lookdown”, International Monetary Fund, viewed January 10 2021 .

Mert Topcu & Omer Serkan Gulal, 2020, “The impact of COVID-19 on emerging equity markets”, Finance Research Letters, Volume 36, viewed January 12 2021

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Firth M., 1977 “The Role of the Equity market”, The Valuation of Shares and the EfficientMarkets Theory. pp.1-13, viewed January 11, 2021.

Josue C., Daniel L & Sydney C, 2020, “WHAT EXPLAINS THE COVID-19 EQUITY MARKET?”, NATIONAL BUREAU OF ECONOMIC RESEARCH, viewed in January 16 2021 . Zaky M., St. Dwiarso U.,Entot S., Shujahat Ali & Wajahat Ali G., 2020, “Equity market Reaction to COVID-19: Evidence in Consumer Goods Sector with the Implication for Open Innovation”, Multidisciplinary Digital Publishing Institute, viewed in January 16 2021

Baig, A., Butt, H.A., Haroon, O. and Rizvi, S.A.R. (2020), “Deaths, panic, lockdowns and US equity markets: the case of COVID-19 Pandemic”, Working Paper, viewed in January 13 2021. VNS, 2020, “Half of HoSE-listed stocks beat the market despite COVID-19 impact”, Vietnam News, viewed January 13 2021

WHO, 2021, “WHO Coronavirus Disease (COVID-19) Dashboard”, World Health Organization, viewed January 11 2021, https://covid19.who.int/? gclid=CjwKCAiAuoqABhAsEiwAdSkVVPAP0eol_nqDlC7k4Z3Pfw4pLLefaT069P0yzpHxQBkCZqxnx8qNRoCgssQAvD_BwE Max Walden , 2020, “How did Vietnam bring the spread of coronavirus to a halt — again?”, ABC News, viewed January 15 2021, .

Giang, N.K. (2020), “Vietnam stocks become world’s best after extreme Turmoil in March”, Bloomberg, viewed January 12 2021

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Giang, N.K. and Yap, L. (2020), “Vietnam is Asia’s best equity market performer in may”, Bloomberg, viewed January 12 2021 .

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____________________________ PART B: REFLECTION ON THE INDUSTRY TALK _______________________________

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The industry talk was about the presentation of Mr. Minh Vu, who is the rates trader of HSBC bank, about the Global Market. About HSBC, they have been in Vietnam since 1870, from then, HSBC has the largest market share in terms of FX amount of foreign banks and also the number one in revenue contribution per headcount in the global market within HSBC. Moreover, the Global Market in HSBC has more than 2,000 of FX trades per month, while having more than 20 systems. Firstly, according to Mr. Minh Vu, the Global Market Department of HSBC is divided into 3 different teams with different tasks. The trading team whose main task is buying with low rate and selling at high rate; the Sales team who are responsible for the client services which mainly serve different groups, such as corporate sale and institutional sale; the Balance Sheet Management managed mismatch and funding of assets and liabilities of the bank. Secondly, the Global Market Department is in charge of three main asset classes such as: Foreign exchange (FX), Rates and Money Market. Thirdly, Mr. Minh Vu presented the transactional flows which included clients, sales, trader and interbank. Moreover, he explained the role of traders in the transactional flows. According to Mr. Minh Vu, the traders are the one who look for the quotes that match with the demand of the clients. Fourthly, Mr. Minh Vu described the Global Market Department as an important job and this job can make a difference in the market. Furthermore, the job is very intense as the global market tends to be dynamic at all times. Lastly, the global market requires four main skills such as: Interpersonal, Quantitative, Professionalism and Learn. The discussion of Mr. Minh Vu has many aspects that are related to the Financial Market course that I’m learning. Firstly, the task of the trading team in the global market department is related to the trading session that we had done in the course. We performed as the bank during the trading session with the main task was trying to buy with the low rate and sell with the high rate, in terms of currencies trading. Secondly, the Global Market deals with three main asset classes, which were introduced to us during the Financial Market course. Moreover, during the Q&A session, he also answered and gave his opinion on Derivative, Bond and Equity market, which related strongly to our Financial Market course. In my own opinion, this industry talk by Mr. Minh Vu is very interesting and helpful for my knowledge. However, it would be better if he mentioned the struggles/obstacles that happen

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in the Global Market. From that, the student can have a better view and understanding if they want to apply for this job after graduation.

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