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Dr Nick J Freeman
In late July 2000, Vietnam belatedly, and hesitantly, opened its first ever stock market. On the first day of trading, just two companies were listed on the Ho Chi Minh City exchange. Twenty-one months later, Vietnam’s stock market trades the shares of twelve local companies, along with 19 different bonds. (All the bonds are issued by the Ministry of Finance or the state-run Bank for Investment and Development, and all have five year tenors.) Even by Southeast Asia’s relatively humble standards, Vietnam’s stock market remains remarkably small, with an aggregate market capitalisation of around US$95 million for the twelve listed firms, and about US$200 million for the bonds. In comparison, Manila and Bangkok have stock market capitalisations of US$19 billion and US$32 billion respectively.
For the first year of trading, the number of brokerage companies (currently seven) exceeded the number of listed companies. Even now, the amount of business for brokers could be described as slim pickings. With the market open just three mornings each week (from 9 to 10 am), average daily trading volume for stocks has tended to be around US$350,000, resulting in weekly commissions of around US$15,000, to be divided between the seven brokerage firms. Some of these, needless to say, are more successful than others. However, in March, the State Securities Commission (SSC) decided to increase trading to five mornings per week.
Despite the SSC setting the share price for companies on their first day of trading, and instituting quite tight daily trading bands for all stocks, the index has been on a roller-coaster ride since July 2000. For the first year, as punter excitement surrounding the new stock market was avid, the index went ‘limit up’ each day, rising from 100 to over 500 by July 2001. And in so doing, valuations for the small number of listed firms rose to levels that resembled internet stocks on the NASDAQ in 2000. Since then, however, the introduction of more firms onto the market, and a cooling in investor sentiment, has seen the index fall to more sober levels. The index currently stands at around 200, with a relatively attractive average price/earnings ratio of around 10 (compared with around 16 for most of Southeast Asia’s equity markets).
Although the twelve listed firms at present span a wide spectrum of businesses – trading in everything from telecommunications equipment to tissue paper, and from cashew nuts to hotels – they all share one common feature. They are all ‘equitised companies’; formerly state-owned firms that have undergone partial divestment. To date, no private domestic company, or foreign-invested enterprise, has enacted an IPO# on Vietnam’s stock market. Clearly, policy-makers have tended to regard the stock market as a platform on which regulated trading of shares in equitised firms can be conducted, rather than as a vehicle for local firms to raise long-term equity financing per se. As the number of equitised companies has crept up into the hundreds (just under 700 to date), there was a need for a more formal means by which shares could be traded, to replace the informal coffee shops. But looking ahead, it is only a matter of time before private firms also gain approval to list, and the IPO business generated should come as welcome news to the brokerage firms.
WATCHPOINT: Vietnam’s stock market will continue to blossom in 2002, and some private sector firms may succeed in listing.
About our company:
AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.
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