Modernizing the Vietnamese Stock Market

The State Securities Committee has licensed nearly 60 securities companies, outnumbering Thailand. More than 550 companies are expected to go public this year and a substantial number of enterprises equitized in previous years have been an important source of supply to this market.

Inside a securities company in HCMC

Although tax-related preferential treatment for privatized enterprises is no longer in effect, the benefit of listing will still be enough to perpetuate the trend and keep the market growing both now and in the future.

Vietnam’s stock market has already entered a new phase of development. What does it hold for investors in coming years? The Saigon Financial Investment (SFI)recently discussed the subject with Mr. Tran Dac Sinh (TDS), Director of the STC (Securities Transactions Center).

SFI: The stock market has been experiencing buoyant investment traffic of late. How do you assess this development?

TDS: If you look at both the supply and demand sides, you’ll see that the stock market is experiencing a massive demand, as reflected by the sky-rocketing number of accounts (200,000 to date) and the volume of orders and transactions taking place. However, to ensure that the market remains stable, it is necessary to develop a means to create more commodities for the market and apply new methods of carrying out transactions using modern technologies. We may soon reach our limits if we expand width-wise, but any deepening growth will be endless in itself.

SFI: We’re expecting a host of major enterprises will be listed this year. How prepared is the STC of Ho Chi Minh city to handle the increasing pressure in order to avoid something like a collapse as we have seen in the past?

What has happened virtually had nothing to do with the operative capacity of the whole system. The volume of transactions in fact has been far smaller than the maximum capacity of the present system. The main problem seems to be related to “mechanical matters”, i.e. the surface of the transaction floor and stations to execute the instructions of stockholders.

If the stock market increases 100-fold or even 1,000-fold in size, there is no way to expand the surface accordingly. This is just like any securities company. Therefore, we are striving to modernize the transaction system. For instance, perpetual transactions will be available from this May. Transactions will take longer and be more responsive to perpetual instructions, and this will hopefully help reduce the pressure on securities companies.

Our center is developing the software for securities companies to transmit their instructions directly to the transactions system, so that we can dispose of the transactions floor by the end of this year. This will help increase the number of stations at both ends to regulate the instructions. It will also assist online trading, thus substantially augmenting the volume of transactions. We are inviting tenders for developing a transaction system that combines registration, countervailing payments and supervision.

We hope the system be put into place by the end of 2008. Such a system will be of international standard so it can be connected with stock exchanges elsewhere in the world, and even allow cross-listing. With this road map, domestic securities companies should make sure that their software for management and payments is at par with international securities companies and compatible with stock exchanges here and abroad.

SFI: How will you work turn the STC into a stock exchange, as already approved by the government?

There are three phases: from 2007-2010, the STC of HCMC will be changed into a single-owned limited company owned by the State and controlled by the Ministry of Finance. Stock markets will be able to join in the capacity of transaction members. From 2010-1015, this limited company will become a share-holding company after an evaluation of its assets and corporatization of ownership.

Some of its assets will be ceded to the public but the State will retain control. After 2015, depending on the actual economic conditions, the State may still exert control by holding at least 51% of the interest. Once this SE Office is fully ready for listing, it will then have its stock listed. We believe that, in this way, the stock market should reach new heights, more or less compatible with international standards, and more attractive to the investing public, listing companies and new market members.

SFI: What we have learned from China where, when major banks got on the floor, the market was instantly in trouble? In the near future, our State-owned general enterprises and banks will also join the game. Could we too expect such an unpleasant aftermath?

If we look at the international market, we can see that when a major economy catches a cold, other economies are affected one way or another. How serious this effect is depends on the level of interdependence. The banking business in particular plays an important role in the national economy as it is the conveyor of capital, pumping money into productive and other business activities.

Therefore, this kind of effect is almost inevitable. However, in order to avoid agitation when bank shares or major corporations are listed, we have to raise the minimum level of registered capital of listed companies, so that the shares among these companies are more equitable. It is necessary to diversify the businesses listed on the market.

The more diverse the stock market is, the less the pressure any single business can bring as a result of the mutually offsetting effect. It is also necessary to increase the liquidity of the market because a fragile market cannot sustain not only the pressure of banking shares but also those pertaining to major enterprises.

In my opinion, we should build separate indexes of each trade group in order that investors can follow closely the fluctuations of their particular trade and make right decisions.

Source SGDTTC– Translated by Nguyen Mai

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