Why classify economic sectors?#
Classifying economic sectors is important for several reasons:
- Understanding the economic system: Classifying economic sectors helps us understand the economic system and how each sector in the economic system works.
- Evaluating the economic situation: Classifying economic sectors helps us evaluate the economic situation, the health of each sector and the global economic situation.
- Risk management: Classifying economic sectors helps us manage risks for investment funds, companies and individuals, by choosing sectors with good futures and avoiding sectors with high risks.
- Asset allocation: Classifying economic sectors helps us allocate assets effectively, by choosing sectors with better futures to invest in and avoiding sectors with bad futures.
How to classify economic sectors#
Economic sectors can be classified in many different ways, depending on the purpose and requirements of each person. Some common classifications include:
- By size and level of activity: Economic sectors can be classified according to the size and level of activity of businesses in the sector, such as small, medium and large industries.
- By nature of products or services: Economic sectors can be classified according to the nature of the products or services they provide, such as manufacturing industries and service industries.
- By field of activity: Economic sectors can be classified according to the field of activity, such as information technology, finance, oil and gas and other business sectors.
- By growth rate: Economic sectors can be classified according to the growth rate, such as fast growing industries and increasing industries
What are the industry classification standards?#
- Global Industry Classification Standard (GICS): An industry classification standard managed by S&P Global and MSCI Consulting, GICS classifies companies worldwide into 11 different economic sectors.
- Industry Classification Benchmark (ICB): An industry classification standard managed by FTSE Russell Consulting, ICB classifies companies worldwide into 10 different economic sectors.
- North American Industry Classification System (NAICS): An industry classification standard managed by the US Department of Natural Resources and Environment and Statistics Canada, NAICS classifies companies in North America into 20 different economic sectors.
Which industry classification standard is most used in Vietnam?#
In Vietnam, the most used industry classification standard is the Global Industry Classification Standard (GICS). It is widely used in investment activities, asset management and market analysis.
Specifically, the Ho Chi Minh City Stock Exchange (HOSE) has officially classified listed companies according to the GICS® standard and deployed 10 industry indexes on January 25, 2016, at the same time as the transition period of the HOSE-Index.
The GICS® industry classification standard is divided into 4 levels, from general to detailed
In GICS, business sectors are classified into 11 main sectors: Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Information Technology, Communication Services, Utilities and Real Estate. Each of these main sectors is divided into more detailed sub-sectors.
GICS limitations#
- Difficulty classifying multi-industry companies: GICS classifies companies according to 11 economic sectors, but companies can operate in many different economic sectors.
- Slow Updates: GICS is updated regularly, but there may be some errors or delays as new economic sectors develop.
- Database Dependency: GICS relies on the S&P Global and MSCI databases, so there may be some errors or inaccuracies when using this data.
- Country Classification: GICS only classifies companies worldwide, so it may not be appropriate for local or country-specific economic conditions.
Industry and Sector Classification Resources#
References on Industry and Sector Classification include:
- S&P Global: S&P Global's website provides detailed information on the Global Industry Classification Standard (GICS), including its structure, industry classification criteria, and economic sectors.
- MSCI: MSCI is a professional financial analysis organization that provides information on the GICS industry classification standard and other economic sectors.
- International economic documents: International economic documents, such as the World Bank, International Monetary Fund (IMF) and Organisation for Economic Co-operation and Development (OECD) provide information on the classification and analysis of economic sectors.
- Decision No. 27/2018/QD-TTg dated July 6, 2018
