Long-term Capital Channel for Economy

Vietnam reaped significant achievements after it set up the SSC 10 years ago and the stock market seven years ago. The stock market has strongly developed and become a long-term capital channel for the national economy.

 

Listing on the stock market forced companies to increase information announcement, enhance business administration and promote transparency. Listed companies saw soaring revenue and profit while their governance levels have been brought to a new high.

 

The operation of the stock market has developed along with the reform, renovation and equitisation of state-owned enterprises. Via the stock market, the equitisation of state-owned enterprises has become increasingly transparent. Regarding companies, they have gained experience in management and operation. 

 

In my opinion, Vietnam should pay attention to publicity and the transparency of information, the development of IT infrastructure for the stock market and to the development of a consistent legal framework for better market development.

 

Because the nature of the stock market is the market mechanism, Vietnam should not intervene by administrative measures and objective rules. The government needs absolute flexibility, especially in supply and demand relationship. The supply-demand usually moves in tune with market trends; hence, timely and objective measures to regulate supply-demand should be employed. If regulatory measures on supply are not timely, supply can rise even in a downtrend market or demand can rise in an uptrend market.

 

In the past time, Vietnamese stock market growth has been rather high. Apart from the soaring volume of securities issued to the public and listed, the price of stocks also increased. To encourage sustained development of the stock market, the Ministry of Finance instructed the State Securities Commission (SSC) to construct a scheme on sustained market development and crisis prevention, which has been ratified by the Government.

 

To develop the stock market, Vietnam should continue improving its legal framework to meet the criteria and standards of top international financial institutions and focus on improving the supply of goods for the market. Notably, it will urge the equitisation of leading state-owned companies to supply high-quality stocks for the market and attract more investors to the market. At the same time, it is necessary to increase publicity in the stock market, especially corporate governance and corporate risk management.

 

Vietnam will continue restructuring the market and will equitise the Hanoi Securities Trading Centre (HASTC), Ho Chi Minh City Stock Exchange (HOSE) and Vietnam Securities Depository (VSD) to increase management flexibility in these institutions as well as increase the managerial level. It is especially necessary to build up market information forecast activities and supervisory activities.

 

During the development of the stock market, Vietnam should pay special attention to attracting foreign investment capital flows for economic expansion. However, Vietnam should seek consistent and long-term solutions to maintain this capital flow. Thus, it is necessary to increase the transparency of this capital flow through registration, reporting and information announcement mechanisms. Vietnam must have sound policies to regulate the flow of FII. The Ministry of Finance and the State Bank of Vietnam are cooperating to reach agreement on this issue.

 

On the other hand, Vietnam should reorganise the operation of foreign representative offices to enhance information reporting, opening more room for foreign fund management companies in the form of branches or wholly foreign owned firms to manage foreign investment capital flows more transparently.

As of October 31, the Vietnamese stock market has over 210 listed companies with market capitalization equalling 40 per cent of GDP (50 per cent of GDP if bonds are included). More than 300,000 securities transaction accounts have been activated, tripling from 2005. The stock market helped listed companies mobilize over VND60,000 billion in the first nine months this year, an increase of over three times against 2006.