If we take only the shares market into consideration, we can see that Vietnam’s total market capitalisation in 2006 increased by 20 folds, equivalent to 22.7 per cent of the country’s GDP in 2006. This is a record which surprised even international investors.
Corresponding to this growth, the number of listed companies registered for trading at the two securities trading centres in Ho Chi Minh City and Hanoi increased by five times, to a total of 193 companies compared to 41 in late 2005. What should be of concern for this fledgling market?
The number of stock investors has also increased sharply. By the end of 2006, the number of trading accounts reached 100,000, three times higher compared to that in late 2005 and 30 times higher compared to the figure six years ago when the market was first launched. Especially, of this total, 17,000 accounts belong to foreign investors, including those of international stature such as JP Morgan, Merryll Lynch and Citigroup. Currently, foreign investors are holding 30 per cent of listed company shares. Vietnam’s stock market is of great attractiveness to foreign investors.
The price of shares, an indicator that reflects market attractiveness, is growing at a very high rate. Within a year, the VN-Index gained over 500 points (164 per cent), from 305.28 points on December 31, 2005 to 809.86 points on December 12, 2006.
If the results of other sectors of the securities market reached in 2006 are added, such as total listed value of the bond market, including government bonds, city bonds and banking bonds which accounted for 7.7 per cent of GDP, and the establishment of financial institutions including 23 securities investment funds (with a total investment capital of US $2.3 billion), over 50 securities companies with total chartered capital increasing by 4 times against 2005, 12 fund management companies, three investment funds and six banks providing depository service, there is enough reason to affirm the boom in the Vietnamese stock market.
The booming stock market in 2006 not only contributed to boosting the development of a new market in the Vietnamese economy, but also to promoting the quality of the whole structure of the current market economy in a comprehensive manner. However, experienced securities investors and market analysts have repeatedly warned that the booming 2006 securities market may create a danger: the market is too hot. The total market capitalization in 2006 of 22.7 per cent GDP was achieved thanks to the increase in prices. Sudden price increases often contain ‘virtual’ elements, leading to inaccurate assessments of the market’s real strength. Besides, the fledgling Vietnamese stock market also includes another potentially dangerous characteristic: low business level. This also comes with the threat of “bubble" blow-up.
In general, the Vietnamese stock market is still fledgling, at a low-level, not stable and of high risks. Thus, it is necessary to assess seriously and in details the real situation of the Vietnamese stock market which is currently of great interests.
Measures for stable development of the Vietnamese securities market
The Vietnamese securities market is entering the year 2007 with both opportunities and challenges. We have every reason to affirm that the market will keep growing strongly in 2007. The high economic growth of the national economy within the context of international economic integration, the high acceleration of the securities stock market, the booming of the enterprises sector looking from the securities market development point of view, including the boosting of the State-owned enterprise equitisation programme, the increase in the number of listed companies, the quick growth of the foreign-invested sector, the increasing attractiveness of the market to international investors, are all elements ensuring a bright prospect for development in the Vietnamese securities market.
Some measures should be taken for stable development of the Vietnamese fledgling securities market. First of all, conditions should be created for balanced development of functions of the securities market. The circulation of capital through changing the rights of ownership should not garner too much attention, while proper attention should be paid to the function of long-term capital mobilisation for the economy. The legal framework for operations of the securities market should be quickly completed. The dissemination of information should make the securities market a market of publicity and transparency. Inspection and supervision of securities trading activities should be strengthened. Implementation of these three measures will help ensure healthy development of the securities market right from the beginning.
To achieve this end, the State Securities Commission of Vietnam plays an important role. Specifically, the Commission should have more independent rights and more responsibility for securities market operations. It is also essential to strengthen human resources training for securities trading activities, as this will determine the long-term growth of the Vietnamese stock market.
The securities market should be restructured towards transforming current securities trading centres into modern Stock Exchanges, building a separate government bonds market and strongly developing securities companies and investment funds in both quantity and quality to increase overall investment quality. Effort should also be paid to actively developing basic markets to create a solid foundation for the quick development of the securities market.
PhD Le Van Chau,
Former Chairman of Vietnam’s SSC
Vietnamese
