Foreign Investors Face Many Barriers in Entering Stock Market

Foreign investors experience difficulties in opening an indirect investment capital account in commercial banks. The complexity in opening such accounts hinders them when investing in Vietnam.

 

Foreign investors who want to carry out indirect investment activities in the stock market in Vietnam have to open two account types, including a security trading account and an indirect investment capital account in commercial banks.

 

Procedures to open codes and security trading accounts for foreign investors, in recent years, are becoming easier and faster with the Government’s approval through Decrees and Circulars, such as Decree 60/2015 guiding Securities Law and Circular 123/2015 of the Ministry of Finance guiding foreign investment activities in the Vietnam stock market.

 

Especially, until early 2016, when the online stock trading code registration system is put into operation, the administrative procedures are also significantly shortened. As usual, investors have to spend a year for consular legalisation procedures, followed by three to five days awaiting the registration of securities trading codes; however, nowadays, trading codes are granted within one day.

 

The opening of the indirect investment capital account is still quite complicated for foreign investors. A representative of a fund management company in Vietnam said the account opening procedures in commercial banks is still quite cumbersome, complex, and to some extent, inappropriate in comparison with the general procedures of other countries.

 

It is also said that the commercial banks in Vietnam asked foreign investors or foreign institutions who are going to open an indirect investment account to have a certificate of specimen registration and business operation regulations; however, many foreign organisations do not have such things as they do not use the seal as well as operation regulations. Further, these foreign companies are also required to provide documents which must be notarized, legalized by the embassy or consulate offices of Vietnam in the country that the organisation has its headquarters. This causes many difficulties for supporting companies such as fund management companies or custodian banks.

 

These strict requirements hindered foreign investors entering Vietnam’s stock market. In some cases, they give up directly investing in the stock market in Vietnam and instead deal indirectly through a service provider abroad. According to a deputy director of a securities company, the number of foreign customers who intend to open an account in Vietnam slightly increased due to these mentioned-above reasons. According to statistics, the number of domestic investors opening accounts within 1 month is equivalent to that of foreign investors in this company within the past few years.

 

Domestic investors only need about 5 minutes to open a securities trading account, but for foreign investors, it used to last for two months or now is reduced about 1 month, leading to the fact that foreign investors have to open trading accounts through a foreign bank.

 

According to stock experts, if the reform of administrative procedures is not performed as expected, the attraction of foreign capital flows into the stock market in Vietnam will face many challenges. Efforts of the securities industry in recent years are remarkable, but it is not enough. Therefore, the State Securities Commission, the Ministry of Finance should propose that the Government actively collaborate with the State Bank and concerned parties to promote the administrative procedure reform, facilitating foreign investors to invest in the stock market.