Vietnam's Fledgling Stock Market: An Uncertain Future

Vietnam’s Fledgling Stock Market: An Uncertain Future

After a recovery and sharp increase in share prices in the first four months of this year, the Vietnam stock market seems to have dropped down a gear with a lacklustre performance. The volume and value of daily traded stock has dropped sharply and the prices of most stocks have fallen recently, resulting in a drop of more than 30 points (equal to 13 per cent) compared with the highest level in April, 2004.

Equitised enterprises: A safe bet

The equitisation of profitable State-owned enterprises, including Bao Minh, Tuong An Cooking Oil and Chuong Duong Soft Drink, has attracted a large volume of investment from the concentrated stock market. Individual investors and investment organisations have now shifted to buying stocks of equitised enterprises because their prices remain low and they constitute major players in advantageous fields.

In recent auctions of stocks of Bao Minh and Tuong An, the number of ordered stocks is higher than the number of offered stocks and prices of these stocks have already increased by between 50 and 90 per cent.

Meanwhile, there is almost no possibility for investors to purchase shares in the major firms, such as REE, SAM, SAV, AGF and BT6. The listing of new enterprises to the market has yet gain any momentum as there have only been two new companies (BBT and DHA) floated on the stock exchange in the last seven months. This is also a reason for the shift in investment to other markets with more attractive goods, including stocks of Sacombank, SSC and Vinamilk.

As well as negative impacts from the increasing CPI, high bank loan interest rates, an unstable gold price, a frozen real estate market and slow investment, speculators cite the failings of the Vietnam stock market to build up the trust of investors. There are also constraints in announcing information about listed companies. This has led to a lack of leaked information making investors, especially individual investors, concerned. Many have consequently sold their shares when negative rumours have circulated.

Urgent and tough measures needed

Unhealthy signs in the market have angered investors who own large volumes of stocks. Investors say that more will leave the stock market if this situation is not rectified. They also expect urgent and tough measures to list profitable enterprises on the stock market as part of the effort to increase the attractiveness of the market.

At the same time, equitisation and initial public offerings should be combined with the listing of stocks on the concentrated market. This is an urgent requirement and if this requirement is met, the stock market will certainly become more attractive with more investors joining in. More importantly, the State Securities Commission and the Ministry of Finance should accelerate the finalisation of legal documents on stocks and the stock market, creating favourable conditions for the market to develop.

The proportion of shares that foreign investors are entitled to own should be increased in particular fields. One of the tough measures proposed by the Government is more suitable tax policies for those who join the stock market to encourage joint stock companies to list on the market while attracting more individuals and organisations to invest in the stocks.       

• P.V