Investor Relations: Unlocking Transparency and Elevating Vietnam’s Capital Market
At its core, Investor Relations (IR) is about providing investors with transparent and publicly available information about a company. It is an integral part of the overall strategy for listed companies and is gaining increasing attention. Notably, not every company excels at crafting an effective and well-structured IR strategy, partly due to a lack of understanding of the full range of benefits that IR can offer.
A well-executed IR strategy brings only advantages. As mentioned, the essence of IR lies in transparent disclosure of information to investors. This transparency fosters a positive relationship with investors and, from multiple perspectives, yields numerous benefits.
Firstly, it enhances a company’s access to capital. In reality, ensuring a stable source of capital is of paramount importance to any business, playing a pivotal role in its survival and growth. Transparent information disclosure builds strong relationships with shareholders and opens doors to alternative sources of capital when needed. Potential investors in the market are more inclined to invest generously and partner long-term with a company that embraces transparency and fosters trust. This, in turn, empowers the company with additional resources to expand, embark on new business strategies, or seize unforeseen opportunities.
Secondly, IR bolsters the company’s reputation and amplifies its brand presence. Shareholders, whether strategic or individual, possess their own network of connections. Having them on board presents opportunities for the company to tap into these networks, thereby building its reputation and establishing credibility for its brand. A well-established reputation brings undeniable advantages in the long run, especially when the company aims to penetrate new markets.
Additionally, IR offers governance benefits. Effective IR enhances the company’s reputation and attracts new customers and partners. Notably, the best talent in the market is often drawn to companies with strong reputations, yielding substantial long-term gains. With the rising adoption of ESG standards as an irreversible trend, attracting top talent can be considered a valuable asset and a driving force for the company’s future sustainable development.
Moreover, a company with a robust IR framework is better equipped to weather challenging economic periods. During economic downturns, businesses often struggle to secure capital, and investors become more cautious about new ventures. However, when a strong relationship with investors is established, the likelihood of finding supportive partners increases. This support may not only come in the form of capital but also through valuable advice and insights, as potential investors often possess robust networks that can provide such advantages.
To enhance a company’s value, IR should not merely focus on information dissemination but also extend its influence into the governance realm. IR serves as the conduit for conveying information in a language that investors understand. It is imperative for companies to embrace IR as a fusion of finance and marketing, targeting a broad community encompassing past, present, and potential investors. The methods of IR execution need to be upgraded and transformed, recognizing the impact of online channels and social networks as a pivotal factor.
IR and the Journey towards Market Upgrade
The Vietnamese stock market has been on the watchlist for a potential upgrade from a frontier to an emerging market by FTSE Russell. This has been a long-standing goal, and we have missed this opportunity for several years since being included in the watchlist in 2018.
In reality, the Vietnamese stock market has fulfilled most of the assessment criteria. However, we have not met the criteria for Delivery versus Payment (DvP), currently rated as “Restricted,” as investors need to have funds in their accounts before placing trade orders (unlike the common practice of requiring funds at the time of trade execution). Additionally, we have not met the criteria for failed trade costs, as there are no failed trades due to the requirement for investors to have funds in their accounts before placing orders.
Market upgrade is a significant goal that has garnered attention from the government and related ministries and sectors. According to the World Bank, an upgraded market is expected to attract an additional net indirect foreign capital inflow of approximately 7.2 billion USD per year to Vietnam, primarily from large international investment funds and foreign investors. Furthermore, an upgraded market will improve stock pricing capabilities due to the participation of professional foreign investors. This provides substantial support for the privatization process, making it easier to divest state capital from state-owned enterprises and increasing budget revenues.
To meet the remaining two criteria set by FTSE Russell, significant improvements and coordination are needed between the government, the State Securities Commission (SSC), and related ministries and sectors. However, it is equally crucial to maintain the criteria already met to avoid a potential downgrade. This includes upholding transparency in information disclosure.
Source: September 2023 Report from FTSE Russell
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This underscores the imperative for companies to excel in IR, ensuring that information provided to investors is publicly available and transparent. When the market is upgraded, the immediate beneficiaries are the listed companies. The presence of large, professional foreign investors will contribute to market stability by curbing market volatility stemming from individual investor psychology. Furthermore, there will be a positive pressure for companies to enhance their quality to meet the requirements of foreign investors according to international standards, collectively fostering a professional and sustainable market.
Huỳnh Minh Tuấn – Chairman of FIDT, Member of the Board of Directors of APG Securities
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