The local stock market has almost fallen into oblivion in 2011, with most listed firms faring poorly and securities brokers incurring losses, ushering in the urgent demand for the State Securities Commission (SSC) to restructure the equity market, an SSC official said on Saturday.
Nguyen Son, head of the Market Development Department under SSC, told a seminar meant to identify opportunities and risks for the market in 2012 that the stock market this year had seen more losses than benefits and his agency is deploying measures to address the problems.
Son revealed VN Index had lost 25 percent of its points and the market liquidity plunged by a half against last year. Despite the additional 60 listed firms in both bourses, the market capitalisation dropped from 39 percent to 32 percent of the gross domestic product (GDP).
Third-quarter financial statements available show that multiple listed enterprises recorded losses in the nine months due to the rising input costs in line with material prices and lending rates. Two-thirds of the listed firms saw the prices of their shares tumble below their book values.
Listed firms also encountered difficulties in capital mobilisation, with share issuance declining 60 percent against 2010, or worth VND13 trillion.
Meanwhile, 68 percent of the securities companies incurred losses and thus scaled down their businesses. Also, the liquidity situation of numerous enterprises was at an alarming level, as some 20 securities firms are facing financial problems and need to be restructured.
Son ascribed the difficulties of the stock market this year to the global economic downturn, the local macro-economic woes and mostly the internal shortcomings of the market itself. Therefore, the main focus of 2012 is to restructure the stock market.
Recently, some securities companies have applied for scaling down business functions, such as Dong Duong Securities Co. Son deemed this movement rational to reduce the firm’s burden as well as lessen the impact on the overall situation with many enterprises lacking liquidity.
At present, SSC categorises the securities companies on the market into three groups based on their financial safety, including the normally operating ones, tSTC under control and tSTC under strict control with 20 companies that might be revoked licenses or forced to merge into others to cut expenses. Moreover, SSC would closely observe the audit reports of securities firms since these reports are now full of problems.
The scheme for restructuring the stock market mentioned the merger of the country’s two stock exchanges. The two bourses based in Hanoi and HCM City have the same function, causing unnecessary expenses.
Particularly, SSC suggested a unified stock exchange of Vietnam with a stock market, a bond market and a market for derivatives. It was expected that the stock market would be located in HCM City while the others should be in Hanoi.
Open-ended funds, in which fund certificates offered to the public must be redeemed on request of investors, would also be launched next year. The Ministry of Finance next week will issue the regulations on open-ended funds.
SSC is also compiling the plan for development of other investment schemes such as index fund, pensioners’ fund, and investment-linked insurance products.
At the seminar, Son recommended several new directions in 2012, such as building sub-sector indicators, making provisions for financial investments in over-the-counter (OTC) stocks, and including treasury bills in general trading on the bond market. Higher standards would also be set for a firm to be listed on bourse next year, he said.