Continuation Tests on Stock Market

The Vietnamese stock market is pinning hopes on healthy development driven by waiting restructuring opportunities.

 

In 2012, the VN-Index and the HNX-Index started at 350 points and 56.79 on January 3 and they closed the year (December 31) at 413.73 points and 57.09 points, respectively. The results showed the upward movement of the indices. However, according to experts, the overall performances were not very optimistic.

 

Although investor confidence eroded to a certain extent last year, the market was still very sensitive to policy information. For instance, in February 2012, the market was given a boost when the State Securities Commission of Vietnam (SSC) launched the VN30 Index - a free float adjusted, market cap-weighted index of 30 stocks with the highest market value and liquidity on the exchange. The market revived and liquidity improved significantly.

 

Later, on March 5, 2012, the official trading time of the local exchanges were prolonged to the afternoon hours. Investors reacted with this move with a record 337.54 million shares changed hands on March 6. The euphoria lasted until May 2012 when the VN-Index climbed to 488.07 points and the HNX-Index moved to 83.79 points.

 

However, the investor excitement did not last long. After three months of recovery, the market began to experience a downward spiral characterised by very poor liquidity. Blue-chips - the shelter haven for investors - lost very much in value. Some blue-chip stocks with peak price of VND300,000 per share previously sank to below the par value of VND10,000.

 

The transparency of corporate information got blurred because more companies ran loss or saw earnings drop. This undermined the investor confidence. This was the main reason for the Hanoi Stock Exchange to apply the HNX30 Index - the tracker of top 30 stocks calculated based on free float adjusted market capitalisation, on July 9, 2012.

 

The move seemed not strong enough to restore investor confidence because the index’s debut day witnessed the VN-Index to break through the resistance of 410 points and the HNX-Index to lose 2 per cent to close at 68 points.

 

Many market “rescue” measures were launched. On August 20, 2012, the SSC officially applied the T+3 payment clearing period. This new regulation enabled investors to quicken capital turnover, thus risks will be reduced.

 

Perhaps, when the investor confidence is low, support policies turn out to be not "high-dose antibiotics" to cure the "illness" of the market. When more and more investors, both domestic and foreign, abandon the market and many listed companies face the brink of bankruptcy, decreased market capitalisation, and waning liquidity, securities account-opening procedures continued to depress for foreign stock investors.

 

This situation forced the Ministry of Finance to make interventions with the Circular No. 213/2012/TT-BTC dated December 11 on instructions for foreign securities investors in Vietnam. Then, the reform of administrative procedures made it easier for foreign investors to participate in the Vietnamese stock market. Instead of submitting judicial record, they only need to show valid passports or social security cards or other equivalent identifications.

 

Concurring with the action of the Ministry of Finance, the stock market started an upward spiral. Many investors expected the market will hold this growth momentum.

Kim Eng Securities said current pressures on listed companies are significant. The prolonged slump made the stock market no longer a fertile ground to raise money. Thus, without improved quality goods and optimistic business results, companies will have to leave the market. In 2013, market regulators will further keep tabs on business performances of listed companies and improve the quality of equities on the stock market.

 

Accordingly, to float shares on HOSE, companies must have registered capital of at least VND120 billion, operate as joint stock companies in at least two years and make a profit, obtain the voting in favour of at least 20 per cent of stake of at least 300 non-majority shareholders, and ROE of at least 5 per cent in the latest fiscal year. To list on HNX, companies must have registered capital of over VND30 billion, operate as joint stock companies for at least one year, have the voting in favour of at least 15 per cent of voting shares of at least 100 non-majority shareholders, and ROE of at least 5 per cent in the latest fiscal year.

 

According to new rules, up to 25 per cent of listed companies are disqualified for capital requirement and 50 per cent fail to meet ROE requirement. As of end-September 2012, among 25 newly listed companies, 13 floated their shares before the validity of the new ruling. Some companies even do not meet both capital and ROE requirements.

 

The new regulations will also tighten the share delisting. A company will be forced to be delisted when it ends operations, incur losses in three consecutive years, and have no securities trade in one year. New standards will eliminate the weak and increase the strong on the market, thus gradually restoring the investor confidence.

On December 6, 012, the Prime Minister issued a decision approving the restructuring of stock market and insurance companies. In addition, the SSC together with the Hochiminh Stock Exchange (HOSE), Hanoi Stock Exchange (HNX), and the Vietnam Securities Depository (VSD) plans to build and set up the stock derivative market. Dr Nguyen Son, head of Stock Market Development Department, the equity derivative market is a must-have product of the financial market and it reflects the depth and breadth of the market. After 10 years of development, the stock market turns less attractive and a derivative market is needed to continued development. This is the strategic direction for the development of the Vietnamese stock market from 2011 to 2020.

 

Speaking of opportunities in the stock market in 2013, Nguyen Duy Hung, President of Saigon Securities Inc (SSI), said that the opportunity for water-treading traders is not many in 2013 but it is an opportunity for long-term investors. Stock values are low and this is a good opportunity for investors to pick up stocks with good fundamentals. Returns will be higher than those from deposits at banks.