## What is the VN Index? Understanding the Vietnamese Stock Market Index for Effective Trading

**VN Index** is considered the "barometer" of the Vietnamese stock market, reflecting the overall sentiment and health of the country's economy. Since its inception in 2000, it has become an essential tool helping investors understand market dynamics.

### What exactly is the VN Index?

**VN Index** is not a specific stock or financial product, but a "comprehensive gauge." It is calculated from the total market capitalization of all listed companies on the HOSE (Ho Chi Minh City Stock Exchange) – the largest stock exchange in Vietnam.

Its operation is straightforward: when Vietnamese companies increase in value, the VN Index rises; when businesses lose value, the index declines. For example, on April 26, 2024, if the index stands at 1,203.03 points, it means the total market capitalization has increased 12 times compared to the opening day on July 28, 2000.

### Practical significance of the VN Index

**VN Index** acts like a mirror reflecting the market's tranquility or chaos:

- **Investor sentiment**: When the index surges, it indicates investor optimism, with funds flowing into a vibrant market. Conversely, prolonged declines suggest anxiety and capital withdrawal.

- **Economic health**: The stock market does not lie – it reflects investor expectations for the future economy. Factors such as monetary policy, business development, inflation… all directly influence this index.

- **Performance comparison**: By tracking the VN Index over the years, investors can compare which years the market performed best and adjust their investment strategies accordingly.

### How is the VN Index calculated?

The VN Index uses the **Paasche index** method, where:

**VN Index = (Current total market capitalization / Base total market capitalization) × Base points**

This method ensures that larger companies with higher market caps have a greater influence on the index – which can be a weakness: giant stocks (like Vietcombank, Vingroup) can dominate the entire movement.

### The historical journey of the VN Index

**2006-2007: The golden era**

After Vietnam joined WTO in 2006, the stock market entered a "hot" phase. State-owned enterprises rushed to IPO, and tax incentives encouraged participation. The result: VN Index nearly quadrupled compared to the previous year.

**2008-2009: Storms and recovery**

The 2008 global financial crisis heavily impacted Vietnam’s market. But from early 2009, government stimulus measures boosted economic demand, and the VN Index started climbing from its bottom.

**2020: The battle with the pandemic**

COVID-19 caused the VN Index to drop 31% in early 2020 – a severe decline. However, thanks to interest rate cuts and effective pandemic control, the market quickly recovered. Foreign investors gradually returned.

**2021-2023: Up and then down**

From Q2/2020 to Q4/2021, the VN Index continuously rose, breaking previous highs and reaching 1,536 points – a record high. But from late 2021, as the Fed began raising interest rates to combat inflation, the index entered a prolonged downward trend. In 2023, the market recovered with a 15.78% increase (better than the Dow Jones with 13.36%).

### VN Index vs VN30: The fundamental difference

Many investors confuse these two indices:

- **VN Index**: Measures the market capitalization of **all** stocks on the HOSE (currently over 400 companies)
- **VN30**: Focuses only on **30 largest** companies by market cap, accounting for about 80% of the market value

The VN Index is like a "thermometer" of the entire market, while VN30 is the "representation" of the giants. To put it simply: if the "big players" sell off, VN30 can plummet quickly, but the VN Index may still "balance out" thanks to small and medium stocks.

### Comparing VN Index with international indices

When comparing the VN Index to giants like S&P 500, Dow Jones, or Nasdaq 100, the differences are clear:

- **Absolute value**: VN Index is around 1,200 points, while Dow Jones exceeds 40,000 points, and S&P 500 is near 6,000 points. But direct comparison is invalid due to different calculation bases.

- **Growth rate**: This is where the VN Index "shines." From 2009 onward, it has increased over 550% (about 45% per year), outperforming many developed markets.

- **Reliability and safety**: The US stock market is still considered a "safe haven" – with a long history, strict regulations, and stable capital flow. Vietnam’s market, though rapidly developing, still has limitations: T+2 trading mechanism restricts foreign exchange transactions, flexibility is limited, and risks are higher.

### Who are the "big players" in the market?

Top 10 largest market capitalization companies in Vietnam’s stock market:

| Code | Company | Sector | Market Cap (Billion VND) |
|---|---|---|---|
| VCB | Vietcombank | Finance | 500.22 |
| BID | BIDV | Finance | 281.57 |
| CTG | Vietinbank | Finance | 174.80 |
| VHM | Vinhomes | Real Estate | 174.65 |
| GAS | PV Gas | Gas | 169.26 |
| HPG | Hòa Phát | Minerals | 165.43 |
| TCB | Techcombank | Finance | 163.56 |
| VIC | Vingroup | Real Estate | 152.87 |
| FPT | FPT | Technology | 150.05 |
| VPB | VPBank | Finance | 145.77 |

Comment: The finance (banking) sector still "dominates" the market, holding a huge portion of market capitalization. This means the health of Vietnam’s banking system greatly influences the VN Index’s movement.

### Current market situation: Opportunity or danger?

In early 2022, Vietnam’s stock market experienced a "dark" year with 9 consecutive months of decline, from a peak of 1,536 down to 960-980 points. However, from a long-term investor perspective, **this is an opportunity**:

- Stock prices are "cheaper," with lower market caps → ideal for buying quality stocks at reasonable prices
- Instead of "chasing" hot markets (2020-2021), now is the time to "gradually accumulate" good assets

History shows that those patient enough to buy when the market is "dispirited" often make the most money.

### Conclusion: Is the VN Index still "worthy of attention"?

After 24 years of development, the **VN Index** has evolved from a nascent indicator to a "mirror" reflecting Vietnam’s economic health. Despite some limitations (such as calculation methods not being perfect, and some stocks dominating excessively), with a 550% growth over 12 years, the **VN Index** proves that Vietnam’s stock market is not a "blind gamble" but a reasonable destination for long-term investors.

Compared to international giants, Vietnam’s market is still young and has much potential for growth. Keep an eye on the VN Index not only for trading but also to better understand the country’s economic future.