Capital Markets and Investment Banking: Future Trends

In 2024, Vietnam's economy faces significant challenges from inflationary pressures and high interest rates, yet it also presents unprecedented opportunities for the capital markets and investment banking. The capital markets have emerged as a key driving force for companies to raise essential resources, while investment banks are playing an increasingly prominent role in advising and executing complex financial transactions, from mergers and acquisitions (M&A) to initial public offerings (IPOs).

In recent years, Vietnam has built a diverse financial ecosystem, with the rapid growth of its capital markets. The value of the stock market in 2024 is estimated to reach approximately 95% of GDP, equivalent to USD 370 billion, creating favorable conditions for businesses to access new capital through the issuance of shares or bonds. This is particularly important as bank credit becomes scarcer due to high interest rates and tight monetary policies aimed at controlling inflation.

Although the capital markets are growing, they face significant challenges. The government bond interest rate increased from 4.5% to 5.5% by mid-2024 to stabilize the market, putting considerable pressure on businesses. Large corporations such as Vingroup and Novaland have had to adjust their capital-raising strategies. Instead of issuing large-scale long-term bonds, they have reduced issuance sizes and shortened terms to minimize the risks of exchange rate fluctuations and the costs of borrowing internationally.

Despite these challenges, many businesses continue to rely on the capital markets as a primary channel for raising funds. More than 40% of listed companies have reduced their reliance on bank credit and turned to the capital markets to finance expansion projects. This represents a major shift in the financial mindset of Vietnamese businesses, reflecting an urgent need to mitigate interest rate risks and seek financial stability in a persistent inflationary environment.

In the investment banking sector, 2024 has seen a strong recovery. As high interest rates make it difficult for many businesses to access bank loans, investment banks have become strategic partners in finding new sources of funding and advising on M&A deals. Mergers and acquisitions, especially in the real estate and renewable energy sectors, have continued to increase in both value and scale. Statistics show that the total value of M&A deals in the first half of 2024 reached nearly USD 10 billion, marking a significant recovery compared to the previous year.

One of the standout deals in 2024 is FPT Corporation's merger with a Japanese tech company, valued at USD 500 million. This deal not only solidifies FPT's position in the international market but also opens up significant opportunities for Vietnamese companies to expand beyond domestic borders. Viet Capital Investment Bank played a pivotal advisory role in this transaction, highlighting the growing importance of investment banks in shaping financial strategies and managing risks for large corporations.

Alongside M&A, IPO activity has also made significant progress in 2024, despite market challenges. Mobile World, one of Vietnam's leading retail chains, successfully completed the largest IPO in history, raising USD 700 million in April. This IPO not only enabled the company to access substantial capital for expanding its retail network but also sent positive signals to the Vietnamese stock market, attracting attention from international investors.

Inflation and interest rates are two key factors that have greatly influenced the activity of capital markets and investment banking in 2024. With average inflation projected to reach 4.5%, businesses are facing rising costs—from raw materials to labor—which directly impact profitability and the ability to scale production. In this context, the need for capital through channels like bond issuance or IPOs has become more pressing than ever. However, the State Bank of Vietnam's decision to raise the benchmark interest rate from 4.5% to 6% in the second quarter of 2024 has increased the cost of borrowing, forcing businesses to carefully reconsider their involvement in major financial activities.

Faced with rising interest rates, companies are also adjusting their long-term investment strategies. Rather than focusing on short-term or high-risk projects, many are shifting toward investing in sustainable growth sectors, such as renewable energy and industrial real estate. This shift creates opportunities for investment banks to advise and support businesses in restructuring their investment portfolios to optimize returns and manage risks during periods of volatility.

Despite the many challenges facing Vietnam's capital markets and investment banking sector in 2024, the long-term potential for growth remains promising. Looking ahead, experts predict that as financial policies become more stable, these markets will continue to play a crucial role in driving the sustainable development of the economy. Businesses and investors need to seize opportunities while adapting to fluctuations in interest rates and inflation to maintain stability and growth in the years to come.