Vietnam Stock Market Looks to Raising Value to 10 Per Cent of GDP

The Vietnam Stock Market, set up five years ago, is the youngest stock market in the region. However, in order to developed and become a major channel of mobilising medium-term and long-term capital, Vietnam's stock market has a lot of work to do.

After five years of operation, Vietnam’s first stock exchange - the Ho Chi Minh Securities Trading Centre (HSTC) - now has 30 listed companies with a combined listed value of VND4,400 billion (US$275 million), equalling 0.6 per cent of the Gross Domestic Product (GDP).

It is a trading floor for VND29,000 billion (US$1.81 billion) worth of government bonds and VND300 billion (US$18.75 million) worth of investment fund certificates. Currently, the stock market has 24,000 accounts, an 8-fold increase in comparison with the first year of operation, including 246 investment organisations and 251 foreign investors.

Furthermore, the Hanoi Securities Trading Centre (HASTC) also began operation in March 2005. Until now, the centre organised securities bidding transactions for 11 joint stock companies. The over-the-counter (OTC) market of the HASTC has also operated in the mechanism of negotiated transactions. To date, six enterprises have been admitted to transact on the OTC market, with an aggregated value of over VND1,400 billion (US$87.5 million). According to experts, the Vietnam Stock Market has numerous shortcomings, such as a lack of goods, in particular high quality goods. The lack of goods has resulted in market expansion standstill and has made it unattractive to new investors.

To build a developed stock market to the level that its value is equal to 10-15 per cent of the GDP by 2010, the State Securities Commission (SSC) is conducting a detailed development plan for the 2006-2010 period, which will be submitted to the Prime Minister by the end of this year and is slated for application from 2006. Under the proposed plan, from now to the end of 2005, the SSC will host seminars to collect constructive ideas from various sectors, ministries, branches, securities companies, investors and others to complete the stock exchange development itinerary in the 2006-2010 period.

According to the proposed plan, the 2006-2010 development period will be subdivided into two particular phases. In the first phase from 2006 to 2008, the SSC will mainly focus on enlarging the size and operational capacity of the stock market. In the second period from 2009 to 2010, the authorised commission will concentrate on increasing efficiency and sharpening competitiveness of Vietnam’s stock market as compared with other regional ones. The SCC, in the two phases, will focus its attention on four aspects: developing the primary market, expanding the secondary market, enlarging sizes and services of intermediary organisations and increasing the number of investors, especially organised investors and foreign investors.

Or in other words, the SCC is conducting two plan versions for the securities market. Both versions take the ratio of the gross market value of listed shares over the GDP as targeted benchmarks. According to the first version, if the growth rate of the market value is medium, the value of the following years double the previous years and the capital size of listed firms only increases 5 per cent, the Vietnam’s stock exchange will need to draw 300 listed firms to reach the targeted gross market value equalling to 10 per cent of GDP by 2010. The capital size of listed enterprises also has to increase, but at a low rate, VND56 billion (US$3.5 million) per enterprise in 2006, VND63 billion (US$3.93 million) per enterprise in 2008 and VND68.3 billion (US$4.26 million) per enterprise in 2010.

The second version is based on forecasts of large corporations and enterprises, which have gone public and listed. In this case, the average capital size of listed enterprises will rise suddenly, probably VND177 billion (US$11.06 million) per enterprise in 2006, VND185 billion (US$11.56 million) per enterprise in 2008 and VND205 billion (US$12.81 million) in 2010. At this level, the number of listed enterprises only needs only be 200 by 2010 but the gross market value of the stock exchange is still equal to 12 per cent of the GDP.

According to the SSC, the above figures are only aimed to make the two versions more clearly, or in other words, an example and assumption, not exact targets. The SSC said the outline and implementation of the stock market development plan is interrelated with a lot of fields out of the authority of the SSC, or it needs regulations and close guidance from higher State agencies to achieve the targets.

In the viewpoints of the SSC, the stock market needs assessing on the basis of supply, demand, intermediary financial organisations and legal regulations. These four factors correlate and influence one another, and in certain course of time, impacts of the four factors on the stock exchange are different.

In this view, the SSC’s solutions to developing the stock market are based on the completion of the four core factors. As regards the supply, there will be a sudden rise but it is necessary to consider the ways to increase both the supply and the demand. As for the demand, there are numerous factors influencing the purchasing power of the stocks such as the stock knowledge, the transparency of the stock exchange, the quality of the goods and the quality of market control among others. Therefore, it is important to focus on seeking measures to increase the purchasing power of the market. This is also a concern of the authorities.

However, the SSC alone cannot develop the stock exchange but it needs close coordination and support from the Government, ministries, branches and enterprises. If there is lax coordination, the stock exchange will see little change in the next five years.