Economic Pressure with Trillions of VND at Stake

The total market value is estimated at around VND35 trillion to VND50 trillion which could drive short-term supply increases. (Photo: T.C)

Viet Nam is currently immersed in a month of international events that has media outlets from around the world focusing attention on the country.

There are two large events coming, the expected entrance of Viet Nam into the WTO and the hosting of the Asia-Pacific Economic Cooperation Forum (APEC) meetings which begin this week.

As a result, there has been a great deal of attention focused on the economic fortitude of the country, and whether or not international investors see Viet Nam as the right environment for sustained growth.

This has been the root of a wide range of possible opportunities, speculations, and challenges brought to the economic sector of the country. Thus, the activity of the Viet Nam stock market has taken center stage.

Great Opportunities for the Stock Market

It’s not coincidental that the Viet Nam stock market has achieved such an impressive rate of development in the past two years.

Most international economic observers agree that Viet Nam’s market should continue to increase in size and strength in the foreseeable future. A growing number of international investors seem to have taken notice as well.

International investment firms such as Citigroup and Merrill Lynch have already opened trading accounts, while others major worldwide investors such as Pheim Asset Management Group and JP Morgan Chase prepare to do the same. Still more investment dollars are expected in the near future from a variety of EU countries.

More and more companies to go to "knock gong" at Ho Chi Minh Securities Trading Center (a ceremony for new member in the bourse). (Photo: T.C)

There are a number of factors that will contribute to the vitality of the economic milieu of Viet Nam.

A considerable influx of investment capital, a steady increase in listings coupled with strong corporate growth reports, and a rapid production of commodities are indispensable to the anticipated monetary growth the country’s economic prognosticators envision being achieved. 

If these conditions are realized, Vietnamese enterprises will have more chances to access outside sources of capital, leading industry experts to believe that this could be a watershed moment for the Vietnamese economy.

Significant Challenges Await

While the latent potential in the Viet Nam stock market is great, the challenges yet to be faced are equally as significant.

The repeal of a tax incentive is creating a logjam of enterprises struggling for the remaining available opportunities before the incentives date of expiration.

There are currently more than 60 enterprises, with investment capital adding up to more than VND9 trillion wishing to be listed.

Upon being granted a listing license, the total market value of these enterprises is estimated at around VND35 trillion to VND50 trillion which could drive short-term supply increases, but could also trigger the market into a price recession.

The market capital continues to increase but investors' knowledge are restrict and follow the “herd instinct”. (Photo: T.C)

Moreover, there are more companies waiting and more expected to apply for the listing license than can be approved before the repeal date of the tax incentive.

Those who are listed after the expiration of the tax incentive will be in danger of their stock losing value in the OTC market.

Another challenge to the Viet Nam stock market is the inclination of investors.

In the end of October and beginning of November there was a fluctuation in the listed stock prices, and a decline of trade volume. This illustrates that many investors are content to wait for a trend of downwards prices.

As the market capital continues to increase, there are still many questions left to be answered.

When will securities investment knowledge restrictions be lifted for a broader economic picture? How will the local investing trends of the public, which seem to follow the “herd instinct”, affect the market? What will happen when more of the market driven organizations are set up? It is questions like these that illustrate the challenges yet to come.

However, these lingering questions do nothing to hinder the Vietnamese optimism of continued market expansion well into the future.

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By Tuong Chau

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