Vietnam Stock Maket Needs More Investors, Interviews SSC Chairman

Stock market is an institution in the macro-economy at home and also abroad as Vietnam has joined WTO and international eonomic integration. As a matter of fact, in two thirds of 2008, Vietnam had to fight inflation, especially in the first three months and later on trade deficit and exchange rates that seriously affected economic stability, financial institutions, businesses and social welfare. In that context, stock market cannot continue the development as the past. In 2008, the capital mobilization was only 75-80 percent of previous year. The decrease was also noted in corporate capital, equitization and bonds.

Is it true that foreign investors have withdrawn their investments in Vietnam stock market and caused the decrease in demand?

The decrease in demand is, first due to the fight against inflation and monetary control. Second, it is caused by higher prices of materials, high saving interest rates affecting business activities and stock market. Third, prolonged and heated development of stock market encouraged businesses to mobilize capital, thus decreasing share and stock values. In such conditions, foreign investors tend to withdraw their investments, especially in Government bonds (over VND7,000 billion in June 2008).

 

Consequently, Vietnam stock market faced difficulties in price, payment,  transaction (70 percent less than previous year). Meanwhile securities companies suffered losses or low profit and investment funds decreased in net value. In addition, misinformation by international institutions on macro-economy has affected market psychologically, especially in the first half of 2008.

 

Then macro-economic solutions by the govenrment have gradually stabilized the  market. In July, August and mid-September the stock market was reactivated and foreign investment increased. The selling of bonds decreased and the buying increased. However, from late September to November, Vietnam was confronted with strong impact of the world economic crisis. The impact is unpredictable and no one can know how long it will last and how soon the market can be recovered. According to some international assessment, it will take one or two years.

In the recent past, the stock prices decreased seriously, 23 percent in October 2008, and transactions also decreased. For its part, the government has taken strong measures and related authorities have closely coordinated in fighting inflation and reviving macro-economy. Ministry of Finance takes action with financial policy contributing to the economic stability, controlling public expenses, cutting down projects and expenses, increasing the stability of macro economy and stock market.

 

Thanks to those strong measures of the government and concerned authorities, Vietnam stock market, unlike other foreign markets, can resist the impacts and coordinated successfully in financial, monetary and securities sectors. The govenrment and ministry of finance have timely dealt with new issues. For its part, SSC has also followed closely the development and the experiences of other countries to increase the resistance of the stock market and avoid the collapse and withdrawal of foreign invesments.

In 2009, Vietnam will have more difficulties in attracting foreign exchanges with the influx of foreign commodities and trade deficit. FDI may decrease and indirect investment may not increase. It will affect payment balance and thereby on exchange rates and macro-economic stability. Therefore, I believe that first of all, we must increase export and reduce import. We must attract more foreign investments, improve imvestment formalities and increase disbursement. Regarding indirect investment, we must coordinate closely with Ministry of Foreign Affairs to reach out to more countries.

 

So far, Vietnam has focussed more on direct foreign investment and less on indirect foreign investment. In the coming years, it must be promoted especially in some important centres to make foreign investors understand better Vietnamese macro-economy, stock market, policy, business environment and potentials so as to attract their investments. Secondly, it is important to promote listing and issuing in foreign countries. Though affecting domestic market, it can improve the management and image of Vietnamese businesses and attract foreign investments and international equity market. In initial stage, it should be done step by step with certain companies and in reasonable percentage, to get used gradually with international equity market, management and accounting. Listing and issuing must be closely coordinated. We cannot start issuing at home and listing abroad as it will fail to atract foreign investments.

 

In addition, we must continue to improve policy on indirect investment : One, promoting foreign indirtect investment; Two, improving transparency and accountability of indirect investment; Three, controlling indirect investment by the management of foreign exchanges to regulate properly; Four, options to be taken in cases of uncontrollable flow of capital, beyond management on exchanges rates, foreign currency reserve, bonds and shares. Those are measures of international standard that Vietnam must take into consideration.