The nation’s stock market is celebrating its 12th anniversary this year. On the occasion, Vietnam News reporter Mai Huong spoke to State Securities Commission chair Vu Bang about issues retarding development of the market.
The stock market, in recent years, has failed in its role of providing companies with an effective channel for raising capital. What happened?
The securities market has been a channel of raising medium- and long-term capital for the government and businesses. Since 2005, over VND600 trillion (US$28.6 billion) has been mobilised. Nevertheless, the pace has declined in recent years. Capital mobilisation by companies last year fell 40 per cent from the previous year, totalling just VND30 trillion ($1.4 billion), and the number in the first six months of this year was just VND7 trillion ($333 million).
This decline could be attributed to several causes. First, the nation’s economy has faced many difficulties, including high inflation and rising interest rates. Second, banks have faced a liquidity crunch and cash flows into the stock market have been reduced as a result of the government’s tightened monetary and spending policies. Finally, earnings of enterprises have not been as strong, decreasing their appeal to investors.
The market perked up in the first few months of this year but then plunged again even as the economy showed signs of improvement. What’s going on, and has the State Securities Comission taken any measures to help shore up the market?
The stock market has recovered in the first five months of this year, with stock indices gaining over 20 per cent. However, the bear market has recently returned on declining liquidity, even though recent government reports have shown that we have passed through the most difficult time, with inflation and interest rates having cooled down, bank liquidity getting better and foreign currency reserves increasing. Nevertheless, the economy is still in difficulty.
Development of the stock market depends heavily on business operations as well as cash inflows. First- and second-quarter earnings reports showed that many companies were facing difficulties, including high financing costs, reduced demand and accumulating inventories. The number of companies reporting losses increased from 72 at the end of 2011 to 113 by March this year and is forecast to continue rising in the second quarter.
Unfavourable economic developments worldwide have also negatively affected the domestic market. In the first half, foreign investment in Vietnam was just around $50-60 million, much lower than the $240 million last year and the $1 billion in 2010.
The government has introduced many measures and policies to boost the economy but these policies need more time to take effect. In the mean time, the commission has taken steps to support the market, such as application of new market price orders, introducing the new VN30 and HNX30 indices, and extending trading hours. But all are technical assistance and the most important thing is still economic development.
Sixty-three of the nation’s 105 stock brokerages reported losses in the first quarter. Is the news going to keep getting worse?
We are under great pressure to quickly reduce the number of securities companies from over 100 currently to around 30. Many difficulties stem from the legal process for shutting down securities companies. The restructuring of securities companies is different from the restructuring of banks since they don’t receive financial assistance from the State and must adhere to Circulars 226 and 52. After August 15, the commission will announce the list of securities companies under special control and, six months later, if these companies have failed to fix their shortcomings, they will be handled in accorance with law. Companies which have had their licences revoked will have time to settle their debts and client issues.