3:31:34 PM | 7/27/2005
In an effort to develop the market economy and synchronise all kinds of markets, including the stock exchange (SE), relevant State bodies, especially the State Securities Commission (SSC), gathered together to discuss the plans to open and develop the SE in 1995. The opening of the Ho Chi Minh City Securities Trading Centre (HSTC) in July 2000 marked a milestone in Vietnam’s efforts in its economic reforms and reaffirmed Vietnam’s determinations in developing the market economy.
After five years of operating the stock market, Vietnam has reached many achievements in the initial stage, generalised as follows:
1. Successfully organising and operating the Ho Chi Minh City Securities Trading Centre, ensuring principles of the SE
HSTC began with two listed companies and a total of VND270 billion (US$16.87 million) in listed value but as of March 31, 2005 it developed to reach a total listed value of VND27,500 billion (US$1.71 billion), including nearly VND1,500 billion ($93.75 million) worth of stocks of 28 current listed companies and over VND26,000 billion ($1.62 billion) worth of bonds issued by the Central Government, local governments and the Bank for Investment and Development of Vietnam (BIDV). In the initial days, HSTC carried out only three transactions a week but from March 2002 it made five transaction sessions a week. Until March 31, 2005, HSTC held 1,000 sessions with an aggregate transaction value of VND25,000 billion, of which bond transaction made up 82 per cent and stock transaction accounted for 18 per cent. (In 2004 alone, securities trading value increased 6.6 folds compared with that in 2003, of which the stock transaction quadrupled and bond trading rose over seven times.)
In the meantime, the deposit system has been improved to shorten payment duration from four days to three. Apart from depositing all bonds, the securities trading centre also deposits over 50 per cent of shares (in 2004: 72 per cent). In addition, all information needed for investors are updated online instead of through on-floor representatives introduced by listed companies.
From May 20, 2003, HSTC applied several technical solutions such as applying At-the-Opening (ATO) orders, reducing minimum deposit rate to 70 per cent, etc. The new amendments have attracted more investors.
HSTC also plays an active role in gathering constructive ideas from investors through seminars for introducing better policies to organise, operate and manage the SE.
However, Vietnam faces certain difficulties because the SE is new to the country while the infrastructure of the SE is not in the best condition.
2. Gradually creating more goods for the SE, strengthening the management of listed firms and clarifying information on the SE.
As of March 31, SSC licensed 28 companies to list on the SE with a combined listed value of VND1,447 billion (US$90.43 million) and allowed BIDV to sell bonds on the SE with a total listed value of VND157 billion (US$9.8 million). The securities trading centre has cooperated with the Ministry of Finance to carry out 65 auctioning sessions to sell government bonds, bonds of DAF and urban construction bonds of Ho Chi Minh City totalling VND6,200 billion (US$387.5 million) through its trading floor. SSC also licensed six listed firms to increase their stock issues by an aggregate value of VND172 billion (US$10.75 million). It is now considering new listing licenses for two more companies (Thien Nam Import and Export Joint Stock Co. (Tenimex) and Culture Joint Stock Co.)
Listed firms more and more observe information transparency regulations on the SE and pay more attention to the company administration. However, they don’t take the initiative in providing information about their business operations. They used to harm themselves and hurt the SE by their false or untimely information and financial reports.
Currently, it is now facing a lot of difficulties in creating more goods for the SE because most of listed firms have small business scales and they have not issued corporate bonds and construction bonds on the SE. In the meantime, the volume of government bonds is sold on the SE is still limited and has not satisfied capital mobilisation demands.
3. Expanding operations of intermediary organisations on the market and improving service quality
Operations of listed firms
By December 31, 2004, SSC licensed 13 securities companies with a combined chartered capital of VND605.75 billion (US$37.85 million) to carry out professions related to intermediary, brokerage, guarantee, and investment inventory management and consultancy.
Listed firms have so far improved customer care service, expanded transaction channels, opened transaction offices and agents in major cities and provinces, and increased chartered capitals.
In general, securities companies have actively performed the intermediary role in stock trading brokerage and listing consultancy and provided necessary information to investors. Recently, they are also engaged in equitisation and bidding consultancy. However, they still have many shortcomings like lacking initiative in developing market, having poor consultancy quality and disqualified workforce and being bad at convincing investors to put their trust on brokers.
Operations of other intermediary and assistance organisations
SSC has selected BIDV as a specialised bank at the SE. As of February 2004, BIDV has made credit and debit balance payments worth VND1,661 (US$103.81 million). Currently, it is engaged in the banking deposits and services for the SE.
To develop stock transfer services, five banks (two local and three foreign) and 13 securities companies are licensed to carry out securities deposit services. The SE has a stable stock deposit system. Until now, foreign investors are allowed to open direct transaction accounts in securities companies and State-owned banks. And, this move has attracted more foreign investors into the market. The operations of these entities are still being impeded by SE’s poor infrastructure system and unautomated services.
Currently, SSC has allowed eight independent auditing companies, including two foreign firms, to audit financial reports of stock-issuing organisations to improve the SE. However, these companies still show weak professions.
4. Building domestic and foreign investor system
After five 5 years, SE of Vietnam has attracted participation of both local and foreign investors. More and more investors are taking part in the SE, helping the SE to exist and develop. Particularly, transaction accounts by late 2000 were nearly 3,000, by late 2001 nearly 9,000, by late 2002 over 13,000 and by late 2004 over 20,500. By February 2005, 229 organising investors and 223 foreign investors opened 22,561 deposit accounts.
However, investors are mainly individuals who have limited capital and their investments are mainly exploratory. They are ready to withdraw when the market seems unstable. In addition, the number of investors is not many. Regular transaction accounts are about 1,000 accounts. As of December 31, 2005, there were nearly 7,000 transaction accounts (over 33% of investors open stock deposit accounts). On the other hand, the SE blames its unattractiveness for the small market scale and unclear policies for foreign investors, most of whom are inhabiting in Vietnam.
5. Intensifying state management over the SE
SSC has cooperated with relevant bodies to set up a full legal document system about the SE and introduce SE management policies to regulate operation and development of the SE market. However, some of issued documents are still impractical and contradictory with other legal ones. To complete the legal framework for the operation of the SE, SSC is outlining the Securities Law and planning to submit it the Government late this year. This law is expected to be passed by the National Assembly in 2006.
To expand the SE in the time to come, SSC has submitted the Vietnam SE development strategy until 2010 to the Government for approval. Accordingly, HSTC will be developed into the Vietnam SE by 2007 capable of connecting with international SEs while the Hanoi Securities Trading Centre (HASTC) will be developed into the OTC market. The latter will reach international standards and practices by 2010.
As regards international integration, SSC has cooperated with over 20 countries, securities commissions, SEs and international financial organisations like ADB, IFC and Japan Monetary Institute to develop its SE by completing the legal framework, internationalising the administration of listed company and developing its workforce. Besides, SSC became a full member of IOSCO in May 2001, whose members have helped develop the SE in Vietnam.
In addition, SSC is also seeking to connect with Singapore Stock Exchange, which is part of an agreement singed between Vietnamese Prime Minister and Singaporean Prime Minister. SSC is also compiling measures to develop bond markets with Asia countries and ASEAN+3 countries.
General assessments
Good points
One, Vietnam succeeded in opening the small-scaled SE, which developed smoothly and had hardly any negative impact in the national social economy.
Two, it has mobilised a large sum of capital for the State budget through auctioning VND10,500 billion worth of government bonds, VND13,200 billion worth of DAF bonds and over VND2,200 billion worth of urban construction bonds. Six listed companies have issued more shares to expand production and increased their legal capital by totalised VND172 billion.
Three, it has developed an intermediary organisation system.
Four, the public has got familiar with securities investment with over 20,500 investors, including 230 organising investors and 220 foreign investors.
Five, SSC and HSTC have drawn a lot of lessons in operating and managing the SE while HASTC has gradually kept pace with the market expansion.
Six, the SE has helped speed up the equitisataion of State-owned enterprises and apply best practices to the enterprise management, including the publicity of information related to the companies’ operation.
Shortcomings
One, despite the government’s advocacy of plans to develop the financial market, including capital market and SE, the implementation is still shredded by different relevant bodies and conflicting policies. Therefore, the capital market and SE failed to become a skeleton capital channel in developing the market economy.
Second, Vietnam’s economy is weak and the per capita is low. In addition, there are no suitable policies to mobilise idle financial sources from the public. Currently, the SE value accounts for only 0.6 per cent of the GDP. Therefore, the SE has not become a medium-termed and long-termed capital mobilisation source for investment and development of the country.
Three, Vietnamese firms still rely on State subsidies and preferential loans and are unwilling to mobilise investment from the stock market. Many enterprises hesitate to make reports on their operations on the SE. Most of listed firms are mainly small-scaled enterprises. Some listed enterprises, controlled by the State, issue just a small percentage of shares compared with their scales. These make the SE unattractive to investors.
Four, investors feel reserved when investing in the SE because of its small market size, poor securities quality and unstable indexes. Further, knowledge and experience of the public about the SE and capacities of securities firms are limited. In addition, governing policies are not suitable.
Five, the State management over the securities and SE still encounter with difficulties due to asynchronous policies.
Reasons
First, the SE is an incorporated part of the financial market but is developed separately. There is no master plan for developing the financial market and no close cooperation between relevant bodies in making and implementing policies and solutions.
Second, listed securities are in small volume and of low quality. Many enterprises refuse to approach the capital market but relying on the State subsidies and preferential and soft bank loans while others feel hesitant to publicize financial information when their firms are listed on the SE.
Three, the SE lacks organising investors (banks, insurers, investment funds and professional securities investment organisations), who may decide the stability of the market and have certain impacts on investment decisions of small investors.
Four, SSC and SE centres are not extremely good at managing and operating the SE due to their inactivity and inexperience.
Five, the vital State assistances, especially tax incentives for listed organisations, are still humble.
Six, fluctuations in real estate market, gold prices, bank interest rate increases, have certain negative influences on the SE.
Development solutions
General solutions:
One, ensuring a stable and healthy macroeconomic environment through its socio-economic policies, increasing GDP, curbing inflation and improving budget collection and expenditure. These are prerequisites for the development of the SE and for consolidating confidence of investors.
Two, speeding up the production of high quality goods for the market, widening capital mobilisation channels by government bonds, corporate bonds and construction bonds, targeting to increase the total transaction value of the SE to 2-3 per cent of GDP in 2005 and10-15 per cent of GDP by 2010.
Three, encouraging organised investors to take part in the SE, developing investment development fund and securities investment fund companies, setting up independent deposit centres and establishing credit rating agencies.
Five, increasing cooperation between related ministries, agencies and localities to ensure the synchronisation and unification in implementing SE-related policies, closely combining the financial and monetary policies with operations of the capital market and SE.
Detailed solutions
One, amending the Decree 144/2003/ND- CP to meet the new demands of the SE. SSC has joined hands with related ministries and agencies to make the amendment. Besides, new policies and regulations related to taxes, fees, auditing and accounting, foreign currency management and property of foreign party should be focused on increasing publicity and transparency. More assistances and preferentials for the SE are also needed.
Second, creating more goods for the SE, selecting giant enterprises, commercial joint stock banks and foreign-invested enterprises to list on the SE and issuing a suitable mechanism for the issue of almost all government bonds, corporate bonds and construction bonds to be sold on the SE.
Three, expanding sizes and scopes, increasing service quality of securities companies, setting up several investment funds and securities investment fund management companies.
Four, upgrading and modernising the infrastructure of the two current securities trading centres, gradually automating deposit and balance system, turning HASTC into an OTC market.
Five, reshuffling and completing apparatuses of SCC and securities trading centres in order to improve their managing, operating and supervising abilities, intensifying the market management and supervision in order to make suitable amendments to effective regulations.
Six, speeding up training and propagandising works and diffusing knowledge about the SE to the public and investors.
Dr. Nguyen Son
Deputy Director of the Market Development
State Securities Commission
Vietnamese
