The achievements and limitations of Vietnam's stock market VIETNAM'S STOCKMARKET Prefrace Vietnam’s economic growth rate has been at 7-8 percent in recent years, and in 2005 the rate up to 8,4 % These rates are considered to be among the highest in the world Therefore to maintain the above rates is a difficult question to the Government One of the effective ways is to raise capital, besides ODA (Official development Assistant) or FDI (Foreign development investment), the other medium and long- term capital we can expect is stock market So what we have got here not only the funds of organization but also individuals' money.It can be denied that nowadays VN's stock market is an effective kind of investment and it also receives a lots concerns Vietnam's stock market was founded in 2000 after a great deal of the Government's effort June 1995, the Prime Minister - Vo Van Kiet signed the dicision number 361/Ttg about the set-up of "The bureau of Preparation for organizing the stock market" From then on people responsible for this project worked hard The State Securities Commission (SSC), was established in 1996, is responsible for capital markets development, licensing of participants, and the issue and enforcement of regulations The Stock Trading Center of Vietnam (STC), located in Ho Chi Minh City, was officially operated on July 20, 2000, and trading launched on July 28, 2000 The achievements and limitations of Vietnam's stock market Initially, just two equities were Refrigeration Electrical Engineering Joint Stock Corporation (REE) and Saigon Cable and Telecommunication Material Joint Stock Company (SACOM) Up to now, there are 56 equities and bonds with the total value of 3.5 billion USD After a long time existing and developing, Vietnam's stock market is surely to be proud of its achievements but there are a lot of limitations and if we don't solve it step by step, the stock market can be failed in one day like the financial crisis in Asia in 1997 in Songapore, Hongkong, Korea and other countries I About Vietnam's stock market: What is stock market ? 1.1 Definition of stock market: It is easy to understand that stock market is a place where parts of the ownership of companies are bought and sold, or the organization of people whose job is to this buying and selling 1.2 Other acknowledge concerned: The achievements and limitations of Vietnam's stock market (Over- the-counter) OTC market is securities market that is conducted by dealers throughout the country through negotiation of price over the phones rather than through the use of an auction system as represented by a stock exchange However, once the deal has been reached, the transaction may be put through the exchange for clearing and settlement process Capital market is the broad term for the market where investment products such as stocks and bonds are bought and sold It includes all the people and organizations that support the process Capital market, in general, refers to the market where the securities maturing in more than a year (longterm) are issued and traded Brokers are the financial institution or its sales representatives, who advise clients how to properly invest, educate their clients what is the current market situation, including rules and regulations, and finally take and excute your buy or sell orders The primary market: The first buyer of a newly issued security buys that security in the primary market All subsequent trading of those same securities is done in the secondary market Secondary market: The market where securities are traded after they are publicly offered in the primary market Most activities occur in the secondary market The achievements and limitations of Vietnam's stock market Some functions: Vietnam's Stock market has a lot of functions but according to me, for two main functions The first is to enable the current private shareholders to sell some of their shares to gain money The aim of these companies may be to raise money to expand the company In this case, rather than selling their own shares, the owners will issue new ones to the public: they will then own less of the company, but the company as a whole should be worth more due to the new addition of cash that can then be invested.Companies are not limited simply to raising money on the stockmarket once But firms don’t always come to market for cash just to fund expansion : they may also need the cash to prop up their finances to avoid business failures.The second is to make profit by buying and selling the shares of the investors Two main functions How a company can be listed In order to be listed in Vietnam's stock market, a company must have been profitable for at least years, have a minimum capitalization of VND5billion (approximately 318,000 USD), and have at least 50 shareholders who are not employees of the company, holding at least 20% of stake Foreign invested joint venture companies are on basis qualified to list, but in order to so, they must be reorganized into joint stock company The achievements and limitations of Vietnam's stock market status Companies intending to list must also submit to audit by an approved, independent auditing company II.The achievement of Vietnam's stock market It must say that Vietnam's stock market has achieved the high target which is developing a stock market from low level to high level without causing any problems to the economics The initial achievements gained after years operation as following: Firstly, Vietnam's stock market have opened a securities transactions market operating succesfully with safe sessions Thanks to this, investors, enterprises, Securities Trade Centers and management agencies could draw valuable lessons in operating and organizing stock market Vietnam has also had some blue chips in the stock market like FPT, Vinamilk, Sacombank, and Vinhson- Songhinh These Companies have helped the local stock market's growth rate The capacity of STC is 300,000 orders per day Particularly, Year 2005 witnessed a stable growth of Vietnam stock market The total trading value of listed bonds was 38.122 billions VND, equaling 4.9% of GDP, and listed stocks gained 9,356 billions VND, equaling 1.2% of GDP (value of both securities trading centers in HCMC and Ha Noi) The VN-index reached 237.23 points in the early year and 308.8 points at the end of this year In March 2005, Ha Noi Securities Trading Center became operational as the second one in Vietnam The achievements and limitations of Vietnam's stock market Secondly, Vietnam's stock market have built up a system of intermediate organizations working in stock market, comprising of 13 securities companies ; fund management company; deposit banks, of which are foreign banks and is nominated bank for payment of securities transactions; auditing organizations permitted to audit securities issuing, listing organizations and securities companies Besides that, The strong inflow of new investors shows that the market is no longer the playing field of big investors and professionals alone It is estimated that about 1% of the investors are institutional investors, the rest are individuals Thirdly, The market became more heated after Government’s decision to increase the maximum stake owned by foreign investors in listed companies from 30% to 49% So far the number of investors has been up to more than 60,000, double the total number counted at the end of 2005 and 20 times higher than the first year of the market's foundation Up to now, the total capitalized market value including bonds has made up more than 10 percents of gross domestic product (GDP), in line with projections of the 2010 local market development strategy 10 The total capitalized market value of stocks now reaches nearly percent of GDP, – percent higher than the projected level of GDP in 2006 Fourthly, management activities of the State management and market members have been increasingly improved The Government much care about the laws and regulations to guide the Vietnam's stock market participants more smoothly like the Decree No 144/2003/ND-CP substituting to the Decree No 48/1998/ND-CP on securities and securities The achievements and limitations of Vietnam's stock market market and MOF’s promulgation of respective guiding circular have made the market management simultaneous International standards of audit and company administration on the basis have been applied Intermediate organizations has brought into play their roles in market building and investment consultancy The Law on National Security was issued after the stock market in 2006, and it came into effect one year later The latest news, On November 2006, the stock market saw the first positive effects from the official WTO entry of Vietnam as the 150 th member of this organization Foreign investors spent up to $2.5 million, higher than 3.3 times in the previous trading session, raising the trading proportion of the entire market 15-20 percent Especially, the event on November 20 th that the United States President- Gorge William Bush visited The Stock Trading Center of Vietnam (STC) made a progess in attracting the foreign investor into Vietnam The appearance of the President arised from VN-Index increased of 10.47 points, up to 587.26 points Overall, there are 4,300 orders placed at each trading session in the HCM City Securities Trading Center at the same day, as compared with about 1,000 per session in 2005.The same effect has seen when the share price of FPT, an IT company, jumped 14 times against face value after Bill Gates' recent visit to viet nam Vietcombank Securities now has more than 12,000 accounts, Bao Viet Securities 8,000 and Saigon Securities over 7,000 The value in each trading session has soared several times, reaching hundreds of billions of dong as compared with tens of billions previously III Limitations of Vietnam Stock market: The achievements and limitations of Vietnam's stock market 1.Lack of information: One of the major problems in Vietnam's stock market is the lack of information, both the quality and quantity of information provided by the trading center Most of the investors often complain about the source of information is extremely poor Market information merely provides some figures concerning the highest or lowest prices, the amount of orders, totally trading volume of the preceding session, and so on They quip that all those source of information they can be already self-collected and self-maintained for Lacking knowledge and experience, many investors tend to buy company stocks even when they don't know what the field of the company is.That causes a virtual increase in stock prices As the securities companies just focus on how to increase the orders, they not have time to offer their customers professional advice on trading stocks Recently, securities companies, securities investment funds, and listed companies in cooperation with the STC, have held online talks with investors every month but not bringing many results There has been a lack of information concerning listed companies; and that the disclosure regime has not properly been implemented, since listed companies often break the regulation on information disclosure From public investors to securities firms and listed company, all have their own varying observations concerning the question of information disclosure Listed companies themselves have their own concerns For them, the shortage of information on the stock trading center mainly stems from the lack of concrete and necessary guidance from either the SSC or the Stock Trading Center The achievements and limitations of Vietnam's stock market Lack of transparency and accuracy Investors also complain about the lack of transparency and accuracy of the financial statement made by listed companies They say that listed companies not periodically disclose information as provided by the law; listed companies not make timely disclosure of information concerning share transactions of company management board's members and of major shareholders; these companies not make timely announcement of information in the public media and in a number of cases their released information is not accurate In addition, the financial statements are said to be sparsely prepared, and the commentaries on such statements lack concrete explanations and securities firms merely get "crude" information concerning market direction or listed companies from the Stock Trading Center; that the firms are hesitant in processing such information for fear of being reproved for doing so Thus, investors will have to selfanalyze the situation and decide their investment, and the consultative role of securities firms is hardly ever activated However, the amount of shares offered for everyday trading is very small It is estimated that about 20-30% of the listed shares are available to be traded The rest are held by the State, big investors, founding shareholders, corporate executives and board members, who hold the shares for long-term investment Therefore, only a small volume of shares, mainly held by short-term investors, is released for trading It is estimated that shares offered for trading makes up just 0.7% of the total amount of shares listed The small size of the market makes it vulnerable to big investors They push shares prices high to sell and send them lower to buy the shares The achievements and limitations of Vietnam's stock market back In this game, small investors will lose, and this worries the State Securities Commission (SSC) SSC has asked the central bank to instruct commercial banks to closely control lending and mortgaging based on shares A price bubble The main reason for the rising stock price is the shortage of shares against huge demand It is the possibility of a price bubble, which may pose a big risk to many investors Many listed stocks are artificially high and not matching the company's performance Some companies have not run well and are even very badly, but investors are still buying for their stocks Money flowing into stocks will continue to rise not for its real value but because of stagnant investment channels like real estate and an imbalance in demand and supply Prices will fall immediately when more shares are listed The reasons for low quality commodities in the market were mainly the slow enterprises equitization, enterprises’ unawareness of the benefits of listing on stock market, enterprises’ unfamiliarity with transparent business, etc…Once the goods supplied to the market is getting more, the need of securities is quicker and more flexible, options are more variable, the speculation will automatically disappear.However, there are still shortcomings and limits in the operation the stock market The biggest limit is that we have not yet created a dynamic and effective market for capital luring and circulating in the economy 4.Lack of the long-term and skilled investors Most investors are short-term players, buying stocks not for investing long term or for dividends, but to gain from price fluctuations The 10 The achievements and limitations of Vietnam's stock market new investors almost ignore the performance of listed companies They even rush to buy shares of poor performing businesses just because of the low prices To have funds for investment, they mortgage shares at banks, borrow from friends and relatives and even sell houses Figures from SSC show that the total value of mortgaged shares at banks amounts to VND751 billion This makes the stock market regulators and experts anxious, because no one knows what the new investors will when a slump occurs Many investorts not have any knowledge about trading shares, their decisions are made by the sensitve mode rather than analysis of listed companies.Share trading has never so easy and profitable But this situation causes a lot of problems People expect to gain much money in the shortterm but the nature of the stock market is the activities of the long-term investment At one time, they altogether buy the same kind of share it is dangerous because they not base on the financial situations od companies, so it is very risky to all members of Vietnam stock market Prices have risen non-stop, bringing huge profit to investors and drawn many first time buyers They buy shares without calculation, as any share can bring in profit The share-buying fever has heated up the atmosphere at securities companies for fear that a crash may occur any time This happened in 2003 That year, the index topped 500 points because of speculative buying, and plummeted to 100 points Most shares lost more than half of their previous values., the legal corridor, technical infrastructure and trader skill levels caused a lack of legal support for the stock market's development 11 The achievements and limitations of Vietnam's stock market IV Conclusion In sum up, We hope that with efforts made by every people from the officials, the companies to the investing public, Vietnam will have a developed stock market in the future, making contribution to the successful implementation of the reform process and to the prosperous economy and more and more foreign investment funds are coming to Vietnam to create "A Strong country of rich people and equitable and civilized society" 12 The achievements and limitations of Vietnam's stock market The reference: Thị trường chứng khoán Việt nam năm hình thành Phát triển Thuộc Bộ tài Uỷ ban Chứng khốn Nhà nước- Nhà xuất tài hà nội -2005 http://www.vnn.vn 3.http:// www.vnexpress.com.vn 4.http://www.vietstock.com.vn 13 ... Limitations of Vietnam Stock market: The achievements and limitations of Vietnam's stock market 1.Lack of information: One of the major problems in Vietnam's stock market is the lack of information,... stems from the lack of concrete and necessary guidance from either the SSC or the Stock Trading Center The achievements and limitations of Vietnam's stock market Lack of transparency and accuracy... and other countries I About Vietnam's stock market: What is stock market ? 1.1 Definition of stock market: It is easy to understand that stock market is a place where parts of the ownership of