Outlook for Vietnam stock exchange in 2009

Vietnamese stocks performed poorly last year as the global crisis rubbed off on the local economy, but the State Securities Commission (SSC) hopes to improve things this year by tweaking the legal framework and regulations.

Investors watch share price movements at a HCM City brokerage. In the longer term, the Vietnamese stock markets would rebound as the economy recovers, a senior securities regulator said. (Photo:E-City)

High inflation, volatility in crude oil and US dollar rates, and soaring bank lending rates caused difficulties to businesses and undermined investors’ confidence.

As a result, the Vietnamese stock markets lost almost 80 percent since the end of 2007, with the market capitalization plunging to 18 percent of GDP compared to 47 percent in early 2007.

Besides external factors, ineffective financial instruments, knee-jerk reactions, and lack of knowledge among investors also played a part.

But the problems notwithstanding, the stock markets continued to expand: The number of securities companies went up from 78 to 99 and the number of funds from 25to 36. Other financial institutions were strengthened.

More than 1,000 joint-stock companies have registered with the SSC to make initial public offerings.

Improving legal framework

To make the market healthier and more sustainable, the SSC will consolidate the legal framework, amend decrees governing the market, and strengthen oversight.

It will also improve intermediary instruments, renovate market development policies, and upgrade operation of securities trading centers and depositories.

At the same time problems that investors face will be addressed and more favorable conditions created for companies to make public offerings both at home and abroad.

The market is now being restructured under a strategy for stock exchange development through 2010. Under this, securities trading centers and securities depository centers are preparing to become one-member limited liability companies so that they can function as independent units.
Bidding for and trading Government bonds have been placed under the management of the Hanoi Stock Trading Center. The year will also see a market created for unlisted public companies.

The market to rebound

Because of its comparatively small size, the Vietnamese stock market has suffered less from the global economic crisis. Still, investors, listed companies, and securities firms all saw their sales and profits decline.

Its prospects in 2009 will depend on the pace of the Vietnamese economy’s recovery as well as developments in the global economy, which is expected to take a long time to recover.

However, experience has shown that after a recession, healthy companies recover quickly and strongly.

Cyclicality is one of the attributes of a stock market.

In the long run, the country’s stock markets will rebound along with the recovery of the economy.

By Dr. Nguyen Doan Hung, SSC Vice Chairman – Translated by Vinh Quang

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