Vietnam’s securities market in 2007 has been assessed by experts as successfully operating despite its irregularities. Investors also seem to have become more professional. However, there still exist concerns about the transparency and macro administration of this market.
According to the State Securities Commission (SSC) report on the operation of the securities market in 2007 and solutions for 2008, the Ho Chi Minh City Stock Exchange (HoSE) in 2007 conducted 248 trading sessions with a total volume of transacted securities reaching nearly 2.4 trillion, equivalent to USD 15.34 billion, or an average of USD 59.4 million/trading session. The VN-index was 927.02 points at the trading session on December 28, 2007, up 185.75 points against the trading session on January 2, 2007.
In the same period, the Hanoi Securities Trading Center (HaSTC) held 248 trading sessions with a total volume of transacted securities reaching nearly 1.4 trillion billion, equivalent to USD 8.81 billion, or an average of USD 35.5 million/trading session, nearly 46 per cent over the figure in 2006. The HaSTC-index reached 323.55 on the December 28, 2007, trading session, up from 241.92 on January 2, 2007.
Foreign investors opened around 7,900 transaction accounts and currently hold 25-30% of shares of listed companies with portfolio value on the official market reaching USD 7.6 billion, triple 2006 figures, the report said.
In 2007, HoSE and HaSTC held 114 share-auction rounds, selling out 765.39 million shares (94.26 per cent of total offered shares) valued at USD 2.96 billion.
In an effort to improve the legal framework, the SSC has formulated and gotten approved by the Finance Ministry a scheme on a specialized bond trading market at HaSTC, and a scheme on depository and trading of shares of unlisted public companies, i.e., the over-the-counter (OTC) market.
It has drafted a Prime Minister’s directive on narrowing the OTC market and developing the official market, a scheme on charges and fees for the securities market, and a scheme on supervision of the securities market. The Commission is also drafting a government decree on issuance of separate securities.
The SSC sanctioned 83 organizations and individuals for administrative violations in the domain of securities in order to enhance management and supervision of operation of the securities market.
The report also pointed out weak-nesses and limitations in the operation of the securities market over the past year. Imbalance in the securities demand-supply relation made the securities market neither stable nor sustainable. Regulations continued to be lacking for newly arising operations such as repurchase agreements (Repo), securities mortgage, or trading of shares not yet listed at securities companies. The quality of and time for disclosing information failed to meet management and market requirements despite increased publicity and transparency of the securities market. The OTC market lacked publicity, transparency and supervision, posing high risks and causing instability to the official market as well as the entire financial system. Information technology infrastructure of HoSE, HaSTC and securities companies has failed to meet requirements in the new situation.
Forecasts to 2010
According to the SSC report, the market value of listed shares is forecasted to equal 60-70% of GDP by 2010.
Capital of securities companies is expected to sharply increase (an average of around USD 31.25 million/company) with an increased gap between large and small securities companies, while fund management companies will strive to raise more domestic and foreign capital.
The number of investors is likely to double or triple the current number (more than 500,000 accounts), with an increasing number of professional investors, of which foreign investors will account for up to 5%.
Objectives for 2008, according to the report, include maintaining the safe and effective operation of the securities market on the basis of stable and sustainable development with capitalized value reaching around 50% of GDP; enhancing macro coordination among the Ministry of Finance, the State Bank and concerned ministries and branches in order to promote the supply-demand relation for the stable development of the securities market; and forming an OTC market and a specialized bond market with new operations.
The coming year
In order to redress the demand-supply imbalance in the securities market, the SSC has consulted the National Advisory Council for Monetary Policies and worked with concerned agencies to make the securities market become buoyant again, said SSC Chairman Vu Bang on January 15 at a conference to review the 2007 tasks and set plans for 2008.
According to Mr. Bang, the SSC recently proposed the Ministry of Finance and the State Bank of Vietnam coordinate in applying a measure to control the supply side by slowing down the IPOs of enterprises like the Industrial and Commercial Bank (Incombank) and the Hanoi Liquor, Beer and Beverages Corporation (Habeco).
The SSC has also identified a wide range of solutions for developing the securities market in 2008, including:
Macro solutions: macro policies will be regulated to maintain a high, stable and sustainable economic growth rate, control inflation and build a market-based, flexible exchange rate mechanism; the legal framework will be further improved to become coordinated, transparent and consistent, and maintain a long-term investment trend in Vietnam; publicity and transparency of businesses and the economy in general will be increased consistent with international practice; reform in the financial and banking sector will be reformed according to market mechanisms; tightened financial and monetary policies will be applied with capital to be controlled by the Government within a safe limit.
Specific solutions:
(i) Perfecting the legal framework, institutions and policies by revising the regulation on auctions via HoSE and HaSTC. To study the formulation of regulations on listing of shares in foreign securities markets, regulations on management of securities indexes, and regulations on depository accounts and Repo mechanism; to study the creation of derivative securities products. To formulate a regulation on transactions and information disclosure in the specialized bond market, a regulation on depository and trading of shares of unlisted public companies, and a circular guiding the decree on electronic transactions in the securities domain. To complete charge, fee and tax policies applicable to participants in the securities market, and the drafting of a decree on private placement.
(ii) Increasing supply-demand quantity and quality: To continue equitization of state enterprises in order to create quality commodities for the market; to apply in a flexible manner offering modes (through auction, agreement, or offer for strategic partners). To diversify forms and improve modes of issuing securities in large lots; to increase issuance through bidding or underwriting for listing in the securities market. To observe regulations on information disclosure and corporate governance applicable to listed companies and public companies.
To allow organizations and individuals to contribute capital to investment funds; to put to operation securities investment companies applying private placement; to allow state enterprises to use non-state budget capital for investment in the securities market; to attract foreign investment capital through increasing publicity and transparency and observing regulations on reporting on foreign investment registration. To publicize a list of business lines with foreign investment capital caps in order to better attract and manage foreign investment capital. To better combine financial and monetary policies in order to create a flexible and effective demand-pull mechanism, shifting to more effective methods of controlling credit capital invested in securities.
(iii) Development of securities trading markets: To restructure and develop the market by transforming HaSTC and the SecuritiesDepository Center into enterprises operating under the Securities Law and establishing a specialized government-bond market at HaSTC. To narrow the OTC market operation through managing public companies under the Securities Law and enforcing regulations on reporting, information and corporate governance; and requesting securities depository and transactions of unlisted public companies to be conducted via HaSTC.
(iv) Raising the capacity of intermediary institutions: To formulate regulations on corporate governance and internal control processes applicable to securities companies and fund management companies; to manage investors’ securities investment deposits at commercial banks; to modernize material and technical foundations and apply information technology to securities transactions in combination with expanding the network of services and products in the securities, finance, insurance and banking sectors; forming and developing investment banks.
State administration: To raise the management and supervisory capacity of state administrative agencies by improving the operating capacity for supervision, inspection and enforcement bodies and market management and operation bodies to meet practical market requirements; enhancing supervision and inspection of market operations and strictly handling violations; ensuring coordination between the Ministry of Finance and the State Bank in the exchange of cash flow information through foreign exchange management and supervision of credit institutions’ securities-related operations such as mortgage, Repo and swap operations.
To increase publicity, transparency and corporate governance quality through strictly implementing the Corporate Governance Regulation applicable to listed companies, securities companies and investment fund management companies and applying international standards and the International Organization of Security Commissions (IOSCO) recommendations based on a good accounting and audit system; reforming administrative procedures in the approval of issuance dossiers, grant of listing licenses and establishment and operation licenses of securities companies, fund management companies and securities investment funds; and making transparent market management and supervision activities of management bodies.
To upgrade information technology infrastructure through improving the information technology systems at HoSE and HaSTC as well as securities companies and depository members in order to facilitate remote transactions and install order-matching screens at securities companies; implementing the project on information technology modernization in the securities sector, proceeding to make automatic all trading, payment, information disclosure and market supervision operations according to international standards.
The securities market in 2007 saw great progress with a growth rate reaching around 20% and capitalized value equal to over 43% of GDP. In 2008 and beyond, investors still expect a wider playing field with long-term policies that regulate the demand-supply relation for the healthy and sustainable development of this market.-