If 1.6 billion shares of the Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) are floated on the Ho Chi Minh City Stock Exchange (HOSE), the lender will be one of the four largest capitalisation stocks on the gauge, given current market prices, and have a strong weight on the movement of VN-Index. VCB’s weight on the index is about 8.7 percent.
Like other heavyweight large-cap stocks, the additional listing of VCB shares may further “distort” the VN-Index as now. Mr Nguyen Son, Director of Market Development Department, State Securities Commission of Vietnam (SSC) talked with the press about solutions to address this shortcoming.
So far, has SSC received the application for additional listing by Vietcombank?
Up to now, Vietcombank has not submitted official application for additional share listing to the Ho Chi Minh City Stock Exchange and the State Securities Commission. Thus, SSC has not been officially informed of its purpose to float its State-held shares on the exchange.
The additional listing of 1.6 billion VCB shares needs to be viewed on two aspects. Firstly, if the bank lists State-held shares while the State has no divestiture plan, its move has little meaning.
For commercial banks, the stock listing must be approved by their shareholders and the State Bank of Vietnam (SBV). As far as I am concerned, the State Bank has approved this but I do not know whether its shareholders approve or disapprove it.
Therefore, Vietcombank’s shareholders should take this into consideration because the bank has to pay a considerable amount of listing fees for listed but untraded stocks.
Secondly, a rise in Vietcombank’s outstanding shares will affect the computation of the VN-Index, although the newly listed shares are not free-floating. Basing on the market capitalisation-weighted method, the weight is counted on outstanding shares, not free-floating ones.
Thus, the ‘distortion’ of the market benchmark is now caused by some big-cap but illiquid stocks.
Recently, the movement of the VN-Index depends on a handful of large-cap stocks. From the perspective of a market operator, do you think it is normal?
It is true that market performances are not accurately translated into the index in many trading sessions. Up to 70-80 percent of listings (small caps) go down but the index still goes up, led by some big-cap stocks.
This reality is requiring stock exchanges to build more new sets of indices in addition to current ones to gauge market developments more accurately.
In my opinion, apart from the current two indices, we need to create new subgroup indices like Top 30 and Top 50 and industry indices. Many exchanges in the world have overall market indices and group indices.
Therefore, we will need new sets of indices to demonstrate market movements more accurately.
What are the principles used to create new sets of indices?
It is said that the computing system for the VN-Index is not correct because it does not tell exactly what is happening on the market and it needs changing. But, in my opinion, this viewpoint is not absolutely correct.
In fact, the VN-Index computing system is wholly automated and is integrated with the software trading system that the Stock Exchange of Thailand supported Vietnam to build. This system software is developed by professional software producers in the United States. This is not home-grown.
The only difference is typical of Vietnam, as there is a large differential between outstanding shares and free-floating shares in a stock and this leads to considerable ‘distortion.’
The situation in Vietnam is different from international practices. In the world, outstanding shares and free-floating shares of a stock are almost equal. In Vietnam, big listing companies were transformed from State-owned enterprises like VCB (where the State is the overwhelmingly controlling shareholder) and the amount of free-floating shares is relatively small in relation to total shares. Thus, ‘dead’ shares increase the weight on the VN-Index and distort it.
This is the problem that we need to address when we recalculate the index.
In my opinion, there is a need for changes in computing the index, but it does not mean that we remake current ones because, in principle, indices are measures to compare and assess history data that feature inheritance and continuity.
The State Securities Commission has directed two exchange operators to study methodologies for creating new indices, like gauges for Top 30 or Top 50 companies or industry indices, in addition to current ones.
Possibly, the weight of indices will be computed on free-floating shares, not outstanding shares, to better represent the market performances.
Currently, the two stock exchanges have established panels in charge of researching and building new indices. They are coordinating with professionals to build and report them to the State Securities Commission for approval and addition to the system. Investors will then have more data and indices to assess the market.
Vietnamese
