Securities market needs an overhaul

Update: August, 04/2015 - 08:52
Viet Nam's market capitalisation value was $50 billion as of June this year, equivalent to 28 per cent of GDP. — Photo vietnamnet

by Quynh Hoa

HCM CITY  (VNS ) — Viet Nam needs to accelerate the restructuring of the stock exchange by enhancing hedging instruments and diversifying products to drive more foreign capital into the securities market, a member of the board of directors of HOSE has said.

Speaking at a conference in HCM City organised by the HCM City Stock Exchange (HOSE) and Stoxplus Co, Nguyen Thi Viet Ha said the transparency of the stock market was relatively high, with the foreign-ownership ratio of 29 percent in the VN30 stock group (companies with the biggest capitalisation value) as of June 30.

Daily average trading value year-on year was more than $100 million.

However, she said the scale of Viet Nam's stock market remained modest in comparison with markets of other countries in the region.

Viet Nam's market capitalisation value was $50 billion as of June this year, equivalent to 28 per cent of GDP, far lower than the other regional markets, such as Philippines SE ($280 billion), Indonesia SE ($421 billion) and Singapore ($755 billion).

Meanwhile, only eight companies listing their shares at HOSE have capitalisation value higher than $1 billion.

Blue-chip groups have seen a low free float rate, including PV Gas (GAS) and BIDV (BID) with a free float rate of below 5 per cent; and Vietcombank (VCB), Vietinbank (CTG) and Bao Viet Holding (BVH) with a free float rate of below 10 per cent.

Vinamilk (VNM), Vingroup Corporation (VIC) and Masan Group Corporation (MSN) have a free float rate below the market average.

Last year, only three companies had daily turnover of over $5 million, Ha said. Thirteen companies had $2-5 million in daily turnover; 12 firms, $1-2 million; and 277 firms, below $1 million.

SOE restructuring

This year, the Government will implement the privatisation of 289 SOEs, including many large SOEs.

"Reduced government ownership at SOEs is expected to increase the share portion that can be sold to outside strategic investors," she said.

Nguyen Quang Thuan, CEO of Stoxplus Corporation, said among 666 listed companies in HOSE and HNX, foreign investors were holding 17 per cent ($10.7 billion) in listed companies. The rate is expected to increase after the gradual reduction in State ownership.

Thuan said that foreign investors were looking for "consumer stocks" or consumer-based businesses, and a two-digit track record in growth.

They also preferred "sizeable" companies and good management quality, which adds to a "significant equity stake".

Foreign investors are willing to pay more for premium companies, and prefer companies with sales of $50 million or more.

Food & beverages topped the list of sectors in which investors are interested, followed by telecommunications, banks, financial services and healthcare.

Management quality, business efficiency and brand reputation are the most valuable assets to foreign firms, Thuan said.

Foreign investors still had great opportunities, as 1,300 unlisted companies are expected to launch their IPOs.

However, the SOEs need to be transparent about business information before and after launching their IPOs, he said.

Other factors that foreign investors consider in the stock market include legal framework, foreign-ownership ratio, the state of the macro-economy and foreign-exchange stability, he added.

Also speaking at the conference, HOSE Chairman Tran Dac Sinh said the Vietnamese securities market had seen remarkable growth compared to last year.

As of July 27, 136 transactions had taken place at HOSE with daily average trading value of VND1.9 trillion ($88.7 million).

Trading volume of foreign investors reached 1.289 billion shares, equivalent to VND39 trillion ($1.8 billion), accounting for 15.17 per cent of the market's trading value.

HOSE also saw an increase of 1.78 times in the buy value of foreign investors compared to the same period last year.

New limit

The new regulation on removing limits on foreign ownership in listed companies will allow 100 per cent ownership in most sectors, while firms will also be allowed to propose their own limits.

"The lifting of limits on foreign stakes is considered a significant impetus for the stock market this year. A significant amount of foreign capital is expected to flow in and strengthen the financial market," Sinh said.

He said the new regulation would help to gradually upgrade Viet Nam securities from being a "frontier" market to an "emerging" one, which could make it eligible for an even greater pool of investors.

An emerging-market ranking requires significant openness to foreign ownership and ease of capital flows, as well as minimum levels of liquidity and market capitalisation, according to stock specialists. —VNS