Vietnamese bourse flying
blind By Tran Dinh Thanh Lam
HO CHI MINH CITY - Vietnam's stock market
is trading at unprecedented levels, representing
the latest indication that Communist Party-led
capitalist reforms are taking root. At the same
time, some local punters question whether the
market has expanded too much too fast, and wonder
if the bourse's first big run-up in share prices
is now primed for a downturn.
When the
stock market first opened in July 2000, business
was slow. With listed shares worth a mere VND270
billion, or US$17.3 million, the market was too
shallow for big-league investors, and skeptical
households held tightly to their savings. Just two
years ago, total market capitalization on Ho Chi
Minh City's bourse was
a
mere $144 million, with just 22 different listed
companies - still not nearly deep enough to
warrant international investor interest.
Since then, the bourse has grown nearly
tenfold, currently capitalized at more than $1.5
billion, with 36 different listed companies. Since
the beginning of 2006, the benchmark Vietnam Stock
Index has jumped by nearly 60%. Recently, big
foreign banks such as Merrill Lynch and a variety
of specialty investment funds have begun to take a
keen interest in the market.
Foreign-investor interest in the market is
expected to grow when Vietnam finally accedes to
the World Trade Organization, which is expected to
happen some time this year. The United States and
Vietnam reached a new bilateral trade agreement on
Monday, which will expand upon the market-opening
deal the two sides first signed in 2000 and is
expected to clear up Washington's previous
reservations about Hanoi's commitment to
provisions mandated by the WTO for
intellectual-property protection.
The deal
will also open the way for more foreign investment
in Vietnam's financial sector. That's good news
for investors hoping to take stakes in newly
privatized Vietnamese firms. Initially, many
investors feared that the government planned to
list only loss-making state enterprises while
keeping the proven money-spinners under state
control. But the recent listing of Vinamilk, the
profitable national dairy producer, was largely
oversubscribed and pushed the equity market's
total value over $1.1 billion.
Many
investors have interpreted that listing as
indication that the communist government plans to
list both profitable and loss-making state
concerns. As such, speculation in shares is
running wild. For instance, days after Microsoft
founder Bill Gates visited Vietnam and concluded a
memorandum of understanding with FPT, a local
information-technology (IT) company, the price of
its shares sold over the counter rose by about 14
times.
Although the market is open for
only two hours per day and shares are issued on a
first-come-first-served basis, stock-market fever
has lured new investors from all walks of life.
Students, housewives and retired government
officials are getting in on the act.
Consider, for instance, Nguyen Thi Tuyet
Loc, a college student who openly admits she
doesn't know the first thing about stocks. But
when she saw her schoolmates making money on the
bourse, or ''playing stocks'' as she puts it, she
decided to join in. So far, her portfolio has gone
up VND32 million ($2,000).
"My friends,
too, are winning. Although we could not get the
famous REE [Refrigeration and Engineering] or VNM
[Vinamilk stocks], the prices of stocks we hold
have also risen,'' said the ebullient young
shareholder. Blue-chip stocks in particular have
rapidly risen in value. REE, for instance, has
increased by 160% over the past three months,
while VNM is up a torrid 76.4%.
The recent
run-up in shares has also meant booming business
for local brokerages. At the Asia Commercial Bank
Security Co (ACBS), the number of new accounts has
risen dramatically, from a mere 60 new accounts
per month in January to more than 400 new
customers in April. To date, ACBS handles the
trades for more than 4,200 investors, with the
regulatory stipulation that each investor may open
only one account.
The majority of
investors, brokerage professionals say, are
amateurs who still don't understand the most basic
financial concepts.
"Most investors just
follow the movement; they don't know the financial
situation of the companies they put their money
into," said Nguyen Quang Vinh, general manager of
Bao Viet Stock Co. "Even the prices of stocks
issued by [money-]losing companies - BBT, DPC, and
BTC - have increased in the last few months, a
clear indication that most investors are not
knowledgeable."
That doesn't appear to
bother the country's communist rulers, however.
Last year, when Deputy Prime Minister Nguyen Tan
Dung opened Vietnam's second stock market in
Hanoi, he boldly pronounced: "Vietnam is
determined to build a market economy based on a
strong bourse". He also asserted that a strong,
sustainable market economy cannot exist without a
strong stock market, and that a growing bourse is
a crucial channel to mobilize long-term capital
needs for economic development.
To realize
that aim, Dung has instructed the Finance Ministry
to create an institutional framework to ensure
transparent and effective operations of the stock
market. He also vowed that foreign investors would
be allowed to hold 49% of public companies, and
that the government intended to privatize between
100 and 200 state enterprises, including the state
banking giant Vietcombank and state-owned telecom
concerns.
Still, some are skeptical that
stock-market regulators are keeping pace with the
growing trade volumes. Tran Van Huy, a stock
trader who speculates in blue-chip stocks, said
that with so many amateurs joining the market, the
bourse has become "unmanageable". He also asks
hard questions about the quality of some
companies' financial disclosure.
The
government "doesn't care about transparency and
credibility. All they need is to make quick
money," he said. "Their careless way of investing
has prompted some loss-making state-run companies
to get auditing firms to draw up sound-looking
reports.'' Nguyen Hoang Hai, secretary general
of the Vietnam Association of Financial Investors,
said he finds it difficult to make any accurate
forecasts from publicly available data. Don Lam,
who manages the $300 million Vietnam Opportunity
Fund, the largest fund through which foreigners
can invest in Vietnamese stocks over the London
Stock Exchange, echoes a similar sentiment.
An even more alarming trend, Lam says, is
that of speculators using shares as collateral to
take out bank loans and then recycle the borrowed
money back into stocks. Since the end of March, 13
million shares worth an estimated $50 million were
used as collateral against loans as commercial
banks pumped money into what has become one of
Asia's hottest stock markets.
The State
Securities Commission recently stepped in and
directed the central bank to tighten loans given
against stock collateral, apparently in a bid to
cool down the market and protect commercial banks
against a rash of new bad debts. Over the weekend
the Vietnam Stock Index fell by seven points, as
speculators offloaded shares and booked gains.
At least for now, Vietnam's new enthusiasm
for shareholding will likely lead to even higher
prices in the months to come. But, increasingly,
there are telltale indications that the bourse is
fast becoming a buyer-beware market.
(Inter Press Service with additional
reporting by Asia
Times Online)
