Securities investors now have a bitter, hesitant feeling of losing a gamble. It is a common feeling. However, the securities market remains an attractive investment channel.
While the Government introduced solutions to restructure the economy and the capital market, the securities market seems to be neglected. For the last days of 2011, indexes fell through earlier floor levels, going down around 350 points in the Ho Chi Minh Stock Exchange and around 60 points in Hanoi Stock Exchange. Investors wearily left the Stock Exchanges; the number of accounts trading frequently is 5 percent, out of 24,000 activated accounts. However, whenever a change appears, a sign of investment wave for example, trillions of VND may return to the market, which shows that there is no shortage of money, it is confidence that is lacking: Confidence that the market will get out of crisis, forming a new trend toward a stable macro-economy.
How to restructure the securities market?
At the end of 2011, the State Securities Commission of Vietnam (SSC) published a detailed solution pack supporting Vietnam securities market to the end of 2012.
Securities are considered the leading sector for which loans are being cut, the money poured into the market has been stopped. SSC Chairman Vu Bang said that SSC is actively searching for a suitable mechanism, coordinating with the State Bank of Vietnam (SBV), to generate proper solutions and help the securities market develop sustainably. Accordingly, they will focus on carefully reviewing problems of granting loans for securities in order to create an appropriate capital source instead of a flat squeeze as currently.
Aiming to strengthen the market, the SSC Chairman said the Ministry of Finance (MoF) will propose that the National Assembly and Government have a tax support for enterprises and investors, especially continuing the tax reduction and exemption in Decree 08/2011/QH13 of the National Assembly on supplementing tax solutions to ease difficulties for enterprises and individuals.
In order to avoid putting pressure on the market when in 2012 many close-end funds meet the deadline to be liquidated, the SSC is developing a plan proposing that the MoF convert close-ended funds into open-ended ones. The SSC has also proposed that the MoF allow establishing securities investment companies, real estate investment funds, and pension funds voluntarily. In 2010, net indirect capital invested into Vietnam reached about US$1 billion, earlier in 2008 US$2 billion flowed into Vietnam. In 2011, this capital flow remains positive, reaching about US$500 million, in spite of a reduction in the last months of the year.
Attracting foreign investment to create a resource for the market is one important solution. The SSC affirmed that it would concentrate on restructuring commodities in the government bond market, implementing a pilot programme of exchanging bonds in conjunction with issuing large lots. The project of developing the derivatives market is also being built to submit to the Government for approval in 2012.
The securities market is also facing the task of restructuring. From April 1st, 2012, Circular 226 on safety norms will officially go into effect; therefore securities trading organizations which do not satisfy financial safety norms will face strong penalties, be fined, or even suspended.
The next stage is to focus on thoroughly restructuring securities companies, including large ones. The restructuring will be based on criteria such as: ensuring financial safety, improving management ability and limiting risks.
Hopes appear in the darkness
In spite of lousy results of securities markets around the world from the beginning of 2011 to date, most world strategists still forecast a strong uptrend in 2012 although world economy has to face many problems. The reason is that world securities markets have been undervalued in comparison with the averages so far.
As an example showing that crises also create extraordinary opportunities, the world securities market legend Warren Buffet had a busy year with his investments when the market declined. With enormous cash reserves, Buffet actively carried out annexations in the world market. The first large one must be the acquisition of chemicals manufacturing company Lubrizol for US$9 billion. After that, Berkshire Hathaway declared to buy 19.9 percent of Wesco Financial for about US$548 million. Buffet opened his wallet and paid more US$10 billion to buy shares of IBM Corporation, after that he bought OMAHA World-Herald newspaper as well as buying more shares in the field of solar energy.
In Vietnam, difficulties in the market have created opportunities for enterprises to restructure their capital resources and concentrate on major activities. In another aspect, when pessimism envelops the market, many good stocks also sink along with the market and are undervalued. Those who possess cash could quietly buy large lots of shares to take over enterprises with strong potential. It is also an opportunity to purify the market, creating new stronger businesses. At this stage M&A with enterprises whose market value is under their face value is currently occurring quietly but vigorously. On the positive side, it is also an opportunity helping enterprises issue more large lots of shares with high price when market liquidity is still bleak.
Good opportunities to make money
Dr Alan Phan, President of Viasa Fund
In the real business world, money always changes and moves from one place to another, and a crisis is also an opportunity to make money. During the series of seminars on investment for 2011 and upcoming tough years, the question I received most from Vietnamese audiences was “I have from VND1 billion to VND5 billion worth of savings. Where should I invest to be safe and effective?"
While many companies said they encountered a lot of difficulties in seeking capital, the global financial market has from US$400,000 billion to US$500,000 billion running around. This money is looking for profitable investment opportunities.
In my opinion, capital is not the most important issue for an entrepreneur, but their idea is the most important. Currently, we have more than 40 investment funds and they will finance good projects. I have a friend who is a representative in Vietnam for a European investment fund. This fund is looking for projects to disburse US$100 million soon. Projects do not have money because they do not have solid ideas and they will have money when they have ideas. If anyone has good projects, I will introduce them to investment funds.
Domestic companies approach capital sources in the traditional way, that is, from shareholders, friends, families and banks. However, I am referring to other sources, that is, financial funds, strategic partners, customers, suppliers or even insurers.
Stock market needs reform
Dominic Scriven, General Director of Dragon Capital
I am sure that the world does not lack capital. Vietnam does not lack money but it lacks unique projects which have high prospect for growth and appropriate scale.
The stock market is in need of reform which originated from thinking and legal compliance of listed companies in a bid to enhance transparency. At present, the two stock exchanges (the Hochiminh Stock Exchange and the Hanoi Stock Exchange) have more than 700 listed companies, of which approximately two-thirds were equitised from State-owned enterprises (SOEs). The rest were equitised from private companies. On the Vietnamese stock market, not only equitised SOEs, but equitised private companies contain governance risks. The greater the opening of companies is, the greater the degree of transparency the outside world needs. Worse, governance weaknesses have resulted in loopholes that their administrators can manipulate. Their acts not only cause loss of assets for shareholders, but also destroy the confidence of small investors on the market.
In many cases, representatives for State equity do not perform their proper roles. The State Capital Investment Corporation (SCIC) is a main representative of State-owned equity. This entity is assigned by the Government to represent the State in equitised companies.
Some investments of Dragon Capital in Vietnamese companies have failed to meet expectations. This stems from governance weaknesses, rather than business model fault or low competitiveness.
In some cases, conflicts of interest among shareholder groups are fierce but the resolution is not satisfactory. For this reason, three years ago, Dragon Capital completely divested from Tuong An Vegetable Oil Joint Stock Company. Currently, we do not continuously update information about this company, but we still view this move as a right decision.
Capital will be mobilised for bond funds and private equity funds
Andy Ho, Managing Director and Investment Manager of VinaCapital
In Vietnam, the government is consistent with a macroeconomic stability-centred monetary policy; GDP growth is estimated to reach 5.5 - 6 percent; inflation is forecast at 12-14 percent in 2012; and the local dong is expected to be stable. The Government should invest more strongly and more effectively in infrastructure and education to reduce shipping costs and time to help enterprises overcome difficulties.
In 2012, VinaCapital will continue investing in private companies and listed companies; offer more real estate and housing projects for sale when the market revives; mobilise capital for bond funds and private equity funds; and pay dividends to shareholders.
As much as 80 percent of VOF will be invested in private companies and the remaining 20 percent will be invested in equitised companies. But with a slow equitisation process as now, the 20 percent fund will be allocated into listed shares.
VOF Fund was set up in 2003 and VNL was launched in 2006, but VinaCapital has not paid dividends. So, in 2012, VinaCapital will pay dividends to shareholders. VNI Fund is incomplete and has not made clear results; thus, VinaCapital will pay dividends when its investments are liquidated.
Long-term outlook for investment in Vietnam continues to be attractive
Mr Chris Freund, Managing Partner of Mekong Capital
Vietnam’s economy has grown at an average compound growth rate (CAGR) of 16.2 percent in Vietnam Dong and 11.9 percent in USD between 2000 and 2010, one of the fastest growth rates in Asia. This high economic growth in Vietnam is driven mainly by: high levels of Foreign Direct Investment (FDI), strong domestic consumption growth from a low base and a high percentage of the population in the workforce, with rates of female participation at almost the same level as male participation. Besides favourable demographics, high rates of home ownership combined with low consumer debt levels and a pro-reform government that has steadily opened Vietnam to global integration and improved the functioning of Vietnam’s capital markets also contribute creating favourable conditions for growth.
Currently the biggest problem for private equity investors is the 25 percent capital gains tax. Another problem is the lack of clarity into what retail sectors are subject to the Economic Needs Test (ENT), and the general difficulty of getting investments properly registered with local Departments of Planning and Investment (DPI). It would be best for private equity if these problems were fixed.
Currently domestic investors no longer run after foreign investors as a few years ago. Macro-economic factors are playing a more important role. Every heart is beating accordance with changes of the macro-economy with a desire for stability this year. New sustainable macro-economic factors are pulling investors back and the securities market will recover. However, trust is always fragile and it needs time to be confirmed.
Bao Chau
Vietnamese
