Chair of the State Securities Committee (SSC) Vu Bang analysed Vietnam's stock market in 2008 and prospects in 2009, saying that "we still continue to follow long-term measures to complete the market."
"The economy in general and the stock market in particular in 2009 might continue to face more challenges," according to him.
It can be seen that 2008 is a difficult year for Vietnam's stock market. How do you see the stock market?
We all know that for almost all of 2008 we had to concentrate on controlling inflation, particularly in the first three months when inflation was going through the roof. Additionally, issues such as trade deficit and forex rate threatened macro-economic stability, financial operations, credit organisations, businesses and people's life. In such a situation, it was hard to expect the stock market to grow as it had done earlier.
Raising capital via the stock market reduced by up to 75 -80% against the previous year. All three channels of issuing shares to increase capital, equitisation and issuing bonds saw strong reduction against 2007.
The reduction of demand was due to the fact that we had to fight inflation and conduct monetary tightening activities.
Additionally, the high increase of material prices, deposit interest rates impacted on production and business activities of companies and stock prices.
Furthermore, in earlier times when the stock market was growing, businesses issued shares to raise capital, which led to share dilution and reduction in share prices.
In this difficult macro economic context, the stock market dropped, foreign investors withdraw money from the stock market, particularly from the government bonds. In June 2008 alone, foreign investors withdrew over seven trillion dong worth of government bonds.
In such a scenario, the stock market saw loss of liquidity. The stock market's trading volume fell by 70% against a year earlier. Securities companies also suffered losses or profit reduction. Investment funds saw their net value slash drastically.
Meanwhile, international organisations put forward contradictory information on macro-economy and because they did not have complete information, their assessment of Vietnam's stock market significantly impacted the market's psychology. This started in the beginning of July 2008.
After that, thanks to proper policies, the country's macro-economy gradually stabilised and the market partially recovered in July, August and mid-September of 2008.
However, from the end of September to November 2008, we continued facing adverse effects from the world's economic crisis and which is expected to last for one to two-years.
Facing those pressures, Vietnam's stock market had some certain effective resistance?
In October 2008 alone, share prices dropped by up to 23% and trading volume also strongly reduced. Nevertheless, we also saw that the government, in 2008, took strong measures and there was better cooperation among ministries, agencies in fighting inflation and settling macro-economic issues.
The finance ministry also took active decisions through relevant finance policies, tightening in public spending, reducing number of projects, tightening budget spending, which positively contributed to stabilising the macro-economy and the stock market.
It can be said that Vietnam's market showed resistance and did not let big upheavals happen as in some other markets due to implementation of some drastic measures, determination of the government and close cooperation among ministries, agencies in stabilising the macro-economy.
The economy in general and the stock market in particular are expected to see various difficulties in 2009. In your opinion, what should we do to overcome those difficulties?
I think that in 2009 attracting foreign currency will be a problem because of difficulties in exports. Imports will be under high pressure due to massive inflows of foreign goods. Thus, fighting trade deficit will be very difficult.
Direct investments are likely to reduce and indirect investments will also not increase. This will adversely impact balance of payment, forex rate and the macro-economic stabilisation.
I think one of the top priorities is promoting exports and reducing imports.
In order to make our market attractive, we should increase the foreign ownership ratio of unlisted companies to 49% same as for the listed companies. What is more, amidst the current context, the foreign ownership ratio at banks should be increased.
At present, we have allowed 100%-foreign-owned banks but the foreign ownership ratio at domestic banks is only 30%. Currently, financial capacity of Vietnamese banks remains modest. If the foreign ownership ratio in domestic banks is increased, domestic banks will attract foreign investment.
In my opinion, this ratio should be increased by another 5% in order to attract foreign investment.
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