CHAPTER 3: PERFORMANCE OF VIETNAM STOCK MARKET
3.1. Overview of Vietnam Stock Market
Despite the birth of Vietnamese Stock Market had its start in 2000, it came into operation in 2006 and has been closely related to internal and global economic changes.
The Vietnamese Stock Market is considered to increase in geometric progression thanks to its achievement. However, there are still inevitable limitations of an emerging and developing market.
Achievements
(1)The stock market has rapidly developed in size and gradually played as an
important medium and long term capital channel
The Vietnamese Stock Market used to be appreciated as one of the fastest growing stock market of the world, especially in capitalization level, proportion, and growth rate (Table 1). In the period 2000-2005, market capitalization was only about 1% of GDP.
However, it made great advances in 2006 with a proportion of 22.7% and 43% in 2007.
Changes of the global financial market and Vietnam’s gloomy economy made the stock market indexes continually decrease during 2008 and made market capitalization decline by 50%, to only 18% of GDP. The recovery of the internal and global economy in the second quarter of 2009 lead to a rapid increase in stock market indexes as well as in the number of listed companies. Market capitalization was VND 717.2 trillion (about 36% of GDP), VND 100 trillion higher than 2009.
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Table 1: Capitalization level, proportion, and growth rate of the stock market Fiscal
year
Capitalization level (VND Billion)
Capitalization proportion
(%GDP)
Capitalization growth rate
(%)
2000 986 0.28 -
2001 1,570 0.34 59.23
2002 2,436 0.48 55.16
2003 2,370 0.39 -2.7
2004 4,516 0.63 90.55
2005 9,598 1.21 112.53
2006 237,276 22,70 2372.14
2007 492,900 40.00 107.73
2008 225,935 19.76 -54.16
2009 620,551 37.71 174.66
2010 717,200 42.25 12.03
Source: The State Securities Commission, % of GDP.
(2)Increase in the number of listed companies has contributed to increase in market
supply and liquidity.
2000-2005 was a gloomy period of Vietnam’s stock market. A very few of companies became listed. In 2000, there were only two listed companies on Ho Chi Minh City Stock Trading Center (they are REE and SAM). The number of listed companies has increased rapidly since 2006 (seeing Figure 1). In 2011, there were 765 companies listed on both Stock Trading Centers, an increase of 18% compared with the previous year. It was the most impressive figure over the past 10 years.
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Figure 1: Size of listing on Vietnam’s Stock Trading Center Source: The State Securities Commission
The stock market has not only grown in listing size, but also had remarkable development in market liquidity. In 2005, there were only 667,600 shares per trading session. The number of shares per trading session was 2.6 million in 2006 (3.93 times as much as in 2005) and was 9.79 million and 18.07 million in the next two years
(3)System of Intermediate institutions and securities services has been developing
in both quantity and quality.
Over the past ten years, The State Securities Commission has authorized operation of 105 stock companies, 47 asset management companies, 382 foreign investment funds, and 8 custodian banks, compared with the number of 4 stock companies in 2000. At the first time, stock companies often supplied brokerage services. Up till now, most of them have implemented financial consultancy services, self-trade and underwriting. Financial capacity of securities companies has been rising remarkably with an average charter capital of over VND 150 billion per company.
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Table 2: The growth rate of the number of stock companies and asset management companies
Year
Number of stock companies
Growth rate
Number of asset management
companies
Growth rate
2000 7
2001 8 14%
2002 9 13%
2003 12 33% 1
2004 13 8% 2 100%
2005 14 8% 6 200%
2006 55 293% 18 200%
2007 78 42% 25 39%
2008 102 31% 43 72%
2009 105 3% 47 9%
2010 105 0% 47 0%
Source: The State Securities Commission
The number of asset management companies has increased from 6 companies at the end of 2005 to 47 ones in 2010. Asset management companies have established and managed stock investment funds. They managed over 200 portfolios for local and foreign individuals as well as organizations. Total equity mobilized by these organizations was estimated about VND 66,000 billion (approximately USD 3.8 billion).
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(4) Local and foreign investors have increased in term of quality and quantity There have been more and more investors joining the stock market, from 3,000 accounts at the end of 2000 to 926,000 accounts in 2010 ( about 300 times within 10 years).
The system of professional investors has been encouraged to develop, so that the stock market could grow quickly and stably and be able to annual market shocks and ensure national financial stability. Besides, the friendly investment environment and encouragement policies have attracted local and foreign investors. Up to now, there have been more than 10,000 trading accounts of foreign investors, and among them are over 1,000 trading accounts of foreign investment institutions.
Shortcomings
(1)Unstable securities indexes
In the first period 2000-2005, VN-index was only 307.5 points, and HaSTC-index was 96.24. In the period 2006-2009, VN-index increased rapidly with the highest point of 1,170.76, and the HaSTC-index 459.36 in March, 2007. However, the global financial crisis in 2008 had certainly influence on Vietnam’s securities market. VN-index strongly declined to 366.02 points (by 71% compared with the beginning of the year). HaSTC- index declined to 105.12 points (approximately 81%). After the crisis, the stock market continued to descend with the lowest VN-index of 251.44 points and lowest HaSTC-index of 88.64 points on March 13, 2009. From February 2010 on, the stock market was sometimes up and sometimes down, and the VN-index varied around 500 points. Large variation is a characteristic of Vietnam’s stock index. VN-index might rise or drop by 25 points per trading session compared with 2 or 3 points of international stock indexes. Such variations of Vietnam’s stock index reveal the unstable growth of the stock market.
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Figure 2: VN-Index in 20107 Sources: www.vcbs.com.vn
7 (1) 11/1: Rumours of prime interest rate increasing (2) 26/1: Prime interest rate rises to 8%
(3) 11/2: Exchange rate (USD - VND) increases by 3,36%
(4) 15/3: ANZ withdraws capital from STB
(5) 01/4: The Government requests the State Bank of Vietnam (SBV) decreases lending interest rate
(6) 07/5: The Government promulgates the Decision No 23/NQ-CP requesting SBV have to bring out suitable solutions for decreasing interest rate
(7) 06/5: The stock market starts to sharply decrease due to worry about public debt in Europe after serous crisis in Greece
(8) 20/5: The Circular No 13 is promulgated
(9) July: Vinashin official announces the debt amount of VND 80,000 billion (10) 1/8: Rumours of Dragon Capital will be capital withdrawal
(11) 12/8: VEIL and VGF decide to do not capital withdrawal
(12) 17/8: Interest rate in the free market increases and official interest rate rises by 2.1%
(13) 06/9: The government requests SBV review the Circular No13
(14) 28/9: The Circular No19 replaces the Circular No13 and there is no important change.
(15) 30/9: Exchange rate in the free market starts to sharply increase and the price of gold tends to robust increase
(16) 23/10 : CPI increases by1.05% by October
(17) 5/11: Prime interest rate increases by 9%, SBV tightens the money and VND has not depreciated until end of year
(18) 11/11: The price of gold rises by VND38 million per tael of gold.
(19) 24/11: CPI in November increased by 1.86%
(20) 8/12: Techcombank increases lending interest rate by 17%
(21) 14/12: Commercial banks are accepted to increase their charter capital by VND3000 million and the lending interest rate cap is by 14%.
(22) 15/12: Moody decreases the credit state bonds of Vietnam to B1 (23) 24/12 CPI increases by 1,98% in December
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(2)Limitations on size and composition
There are only about 500 stock tickers and some bond tickers on the two stock exchanges, which is rather modest compared with the potential of the economy. On the contrary, specific government bond market has more than 500 bond tickers, which will, according to international practice, decline the liquidity of the market. The stock market mainly focuses on share trading, though traded shares accounts for only 60% of the listed shares. Bond trading is still modest despite its enormous potential. On the whole, quality of listed companies on Vietnamese stock market is moderate: (i) Corporate management quality is rather low; (ii) most of listed enterprises are small and medium sized ones with low capital and few development opportunities; (iii) Many top companies hesitate to join the listed market…
(3)Inadequate market composition
Besides the two stock exchanges (HOSE and HASTC), Vietnam has many other spontaneous security trading markets such as trading activities in the secondary stock market, unofficial online trading, bond mortgage (government bonds mainly) and trading on free market. These models have forced social cost to increase, which is not suitable to international trends. Moreover, the proportion of traded shares to public companies has been too low. Shares are also not attractive to investors. There have been share markets registered at the Custodial Center that do not have trading mechanism and ownership transfer.
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Upcom-Index Trading value Figure 3: Upcom-Index and trading value in Upcom market
Source: Hanoi Stock Exchange
The Upcom trading system (including Trading market on which shares has not been listed) has still not brought into play the market establishment role. This market has not been attractive to investors. There are only 600,000 shares (about VND 9 billion) each trading session. Upcom-index is about over 40 points, a decline of 60% compared with the opening day June 24, 2009. One of the reasons causing this gloominess is the two official stock exchanges. Investors still give priority to shares with high liquidity on the two official stock exchanges rather than on Upcom exchange.
(4)Shortcomings of intermediate institutions and market development supports Most of branches of security companies and custodians are in Hanoi and Ho Chi Minh City. Lacking of a large network of stock companies and custodians in other provinces has made investors not be attracted. Furthermore, there are too few crucial
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institutions such as stock investment funds, credit reference companies, and stock transfer agents. The staff still lack of qualifications, experience and skills.
In conclusion, Vietnam’s stock market has made remarkable advances in both size and quality. Markets, stock exchanges, specific bond markets, UPCoM, etc… have been distinguished and developed. Intermediate systems have been improved. The quality of publishing information has been improved. Security market has become an important capital channel for the economy. Anyway, many emerging issues have seriously threatened the transparency and stability of the market. Therefore, besides duly policies to stabilize and develop the market, projection and information transparency are really necessary in the next time.