Vietnam's Bourse Posts Encouraging Signs in 2004

 Vietnam's Bourse Posts Encouraging Signs in 2004

The establishment of Vietnam's organized stock market on July 20, 2000 marked an important step in the country’s financial economic restructure toward openness and integration. To date, 26 companies have been listed on the bourse with total shares being worth VND1.319 trillion according to their face values, or 2.02 per cent of GDP. In 2004, the market gained encouraging achievements.

First, VN-Index, compared with late 2003, increased by 72.35 points (or 43.3 per cent) to 239.29. In other words, interest gained by stock investors could rise by 43.3 per cent in 2004 if they engaged in long-term investment according to market portfolio, or they held all kinds of shares with the proportion of each share in the portfolio being that of the share in the market. The volume and values of stocks transacted soared last year. A total of 419.376 million stocks worth over VND37.761 trillion changed hands, posting year-on-year respective surges of 694 per cent and 1,173 per cent. Of the total volume, that of shares, certificates of investment fund VF1 and bonds accounted for 17.32 per cent, 0.81 per cent and 81.87 per cent, respectively.

Second, the State Securities Commission, in 2004, licensed 4 new listed companies, BBT, DHA, SFC and NKD, raising the total to 26. Besides, 30 million VF1 certificates were listed, creating a new investment tool, and helping establish a collective investment mode in Vietnam. The number of new listed companies, though modest, shows that enterprises have seen advantages of being listed on the stock market, like having effective channels to mobilise capital and promote their corporate images. The Hanoi Maritime Joint Stock Company is asking the commission for being listed on the local bourse. Another encouraging sign is that most of listed companies performed fairly well in 2004.

Third, one of the stock market's roles, a channel for medium-and long-term capital mobilisation, was gradually affirmed. Up to five listed companies, namely GMD, HAP, HAS, TMS and TRI, issued additional shares totalling VND45.5 billion to raise their chartered capital. Also, GMD and REE are about to issue more shares to pay dividends in shares.

Fourth, two more securities companies were set up, bringing the total to 13. Of the 13 firms, nine are licensed to conduct up to five kinds of services. To sharpen their competitive edge and expand operations, some companies increased capital. Now, total chartered capital of all securities firms stands at VND605.75 billion, up VND82.75 billion against 2003. Branches of securities companies were expanded, creating favourable conditions for investors to access the stock market.

Fifth, more and more foreign and local investors poured money into the bourse. A total of 20,347 accounts, including 207 owned by corporate investors, were registered at securities companies, rising over 23 per cent against 2003. The number of accounts owned by foreign investors increased by 137 to 197. Such funds as Dragon Capital, Phanxipan, Vietnam Opportunities Fund and Arisaig have been invested or are prepared to invest in Vietnam’s stock market. Foreign investors so far hold nearly 30 per cent of shares, their maximum permissible level, of 11 listed companies. This shows that foreign investors are paying special attention to the development potential of the local bourse.

Sixth, the transaction system of the Ho Chi Minh City Securities Trading Centre ran smoothly. All of 250 transaction sessions in 2004 were successful. The centre changed the mechanism for bond transactions – conducting the transactions under the mode of negotiations to separate bond transactions from share ones. It is actively coordinating with relevant bodies to carry out a scheme on upgrading its transaction system.

Seventh, the issuance of government bonds went well. The centre opened 36 tenders for government bonds with total bid-winning values of nearly VND2.158 trillion. The stock market currently lists 199 kinds of bonds, up 137 over 2003, with a total volume of 229.325 million worth VND23 trillion. The number of bonds changing hands in the secondary market soared to 343.358 million in 2004 from 25.081 million in 2003. One of major factors leading the effervescent bond bid and transaction was the adoption of a new bidding mode, under which bonds are offered at a price either higher or lower than their face value.

Eighth, the legal framework for the stock market was considerably enhanced, ensuring the that the market operates in a secure and stable manner, and encouraging entities to participate in it. A series of legal documents regarding the stock market were issued in 2004, including circulars on guiding the implementation of Decree No.144 on stock and the stock market, Prime Ministerial Decision No.84 on equitizing some State-owned corporations on trial basis, Decree No.187 on changing State-owned enterprises into joint stock companies,  Prime Ministerial Decision No.161 on functions, tasks, power and structure of the State Securities Commission, and Decree No.164 on imposing administrative punishment regarding stock and stock market. Besides, a stock law is under construction. The law, expected to be issued in 2006, will create a more stable and sustainable legal environment for the stock market.

Despite the above-mentioned achievements, Vietnam's stock exchange faces a number of shortcomings. Its role regarding medium-and long-term capital mobilisation has not been brought into play. The number of listed companies is small, while joint stock firms are mainly medium-and small-sized enterprises. The proportion of shares and that of bonds listed on the bourses are very different. Foreign investors’ participation in the market is limited by the share ownership cap of 30 per cent, and the quality of stock market-related information publicised has yet to satisfy investors.

One solution is to offer technical assistance to the stock transaction activity and to raise the liquidity of securities. The Ho Chi Minh City Securities Trading Centre has cooperated with foreign experts in seeking to discover the optimal transaction mode most suitable to Vietnam’s conditions, and upgrading the existing transaction system. Also, it is discussing with domestic and international organisations about steps to connect transactions, conduct cross-listings and issue ASEAN+3 bonds. The State Securities Commission has signed cooperation documents with the People’s Committees of Hanoi and Danang to have close coordination on developing the stock market nationwide. The Government has assigned the Ministry of Finance to revise the share ownership cap.

In 2005, the State Securities Commission will expand the organised market, put the Hanoi Securities Trading Centre into operation, and license large-scale enterprises to be listed. Also, the transaction system of the Ho Chi Minh City Securities Trading Centre will be upgraded.

• Tri Dung