The obligatory bull and bear statue and dealing floor replete with a big board remains, but the only real trading at the Ho Chi Minh Stock Exchange building these days is done by the hawkers selling pet birds and live grasshoppers just outside the gates.
It serves as a symbol of a country just beginning to come to terms with the pace of rapid evolution in its financial system.
Ten years ago, this Communist country had no stock brokers and no Vietnamese companies had ever sold shares to the public. There are now more than 100 brokerage firms and the main stock market, which was only set up ten years ago, launched online trading last January, using a system developed with the assistance of the Stock Exchange of Thailand.
Given the pace of economic reform in Vietnam, the speed with which the stock market has developed over the last few years has been rather spectacular.
The market building is located in Ho Chi Minh City, the country’s main commercial centre, and began life as the Ho Chi Minh Securities Trading Centre in 2000 with just two listed stocks. For the first two years, trading took place only on alternate days. From 2006 inflows of hot money and a raft of new listings transformed the market. In nearly five years it has soared from 34 companies with a market capitalisation totaling just $86m to 268 companies with a market capitalisation of more than $27bn today.
There is also a smaller market in Hanoi, Vietnam’s capital, which trades mostly small-cap stocks as well as bonds and some over-the-counter securities. The total market capitalisation is $6bn and few foreign investors take an interest in the Hanoi market.
The inflows eventually began to destabilise Vietnam’s transitional economy and the bubble invariably burst in 2007, causing the stocks to slump and the appetite for new issues to dry up.
Many foreign investors pulled out, some having been burnt badly, and the market has drifted sideways since a rebound in the first half of 2009.
The market is now dominated by Vietnamese investors, who accounted for 93.5 per cent of trading volume last year. Day-to-day share price moves are often driven by feverish retail investors trading on a combination of rumour and purported inside information from questionable local brokers.
In terms of the market rules, trading hours are 8.30-11am and shares are only allowed to trade within a five per cent band either side of the previous session’s closing price. Foreign ownership of companies is generally capped at 49 per cent although it is limited to 30 per cent for banks. Short-selling and margin trading are not officially sanctioned, although some canny domestic investors find ways around this.
These rules are similar to other emerging markets, HSBC argued in a recent report that urged investors to “take a fresh look” at the Vietnam market. The investment bank believes the real difficulties for foreign investors lie in the chronic shortage of dollars, which means it takes time to repatriate large amounts of capital, and the lack of liquidity, with a total market turnover of only around $30m a day.
With Vietnamese stocks trading on low price-to-earnings ratios compared to other Asian markets, foreign interest has picked up over recent months but is likely to remain limited for the foreseeable future because of structural limitations.
“The Vietnamese stock market, despite being the cheapest in Asia in valuation terms, is a risky investment for institutional fund managers,” Jim Walker of Asianomics, a Hong Kong-based independent research house, concluded after a recent visit to the country. “It is small and only eight stocks trade more than US$1m per day.”
However, following Vietnam’s first flirtation with stock market boom and bust, the pace of change has been more measured.
The Ho Chi Minh Stock Exchange, led by chief executive Tran Dac Sinh, plans to boost liquidity and foreign investor interest by strengthening market surveillance, enforcing new corporate governance standards and developing derivative products over the next few years.
The exchange has signed memorandums of understanding with all the world’s major exchanges and some of the smaller players. It has also signed up to the early-stage plan to develop some form of Southeast Asia-wide share trading platform.
After such a rapid period of development, a period of consolidation may be just what the market needs.
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