"Room" Solution: Not the Best!

Saturday, May 17, 2008
Investors expect the Ministry of Finance will introduce measures to stabilise the falling market and curb rising inflation in May. However, investors still expressed doubts about this remedy, especially the widening of room.

In the Ministry of Finance’s Decision No. 745 on action programme to stabilise the market and curb inflation, the Corporate Finance Department and the State Securities Commission of Vietnam (SSC) were assigned to amend and supplement Decision 238/2005/QD-TTg on the ownership ratio of foreign investors in the Vietnamese stock market and make reports on this matter in May. Thus, the regulations on the ownership ratio of foreign investors (room) at no more than 49 per cent in listed in companies and at no more than 30% in listed financial and banking companies will be changed.

What is the new ratio?

In early 2007, a large amount of foreign currencies flowed into Vietnam and this led to complex macro policies regarding economic growth, foreign exchange, tax and inflation. If the room is widened, foreign capital flows will increase their pressure on Vietnam.

According to many experts, the room widening needs reviewing. The 49% ratio seems too generous to foreign investors in a fledging market like Viet Nam. Except for Singapore, the ratio in Vietnam is no less than any other ASEAN countries, which had stock exchanges for decades. In China, the room for foreign investors is only 10 per cent but this market is still strongly developed with 130 million trading accounts in total, equalling 10 per cent of the population.

Experts said, to develop a stable market, Viet Nam needs to enhance the knowledge and maturity of domestic investors as they are the internal force which determines the health of the market.

Let enterprises decide room

According to statistics from the Ho Chi Minh City Stock Exchange (HOSE), as of April 26, 2008, only 13 stocks had no more room for foreign investors (49% in non-financial firms and 30% in STB).

Thus, the room for foreign investors is still large in other firms. The widening of the room is not an urgent solution. Mr Nguyen Bang Tam, vice dean of the Vietnam Association of Listed Businesses, said the room widening is not important because the market has fallen to a very low level and seemed stagnant. However, this is a supporting measure. More importantly, the room adjustment needs flexible. The State should only set the foreign ownership ratio in special firms and let other firms to choose the ratio for foreign investors. For example, some enterprises need the presence of foreigners in the board of directors while others do not. An across-the-board opening is okay but may cause problems when the state wants to narrow the room when the market has problems.

According t Mr Nguyen Thanh Ky, General Secretary of Viet Nam Association of Securities Businesses (VASB), his association’s members have not reached consensus in room widening ratio because the share price reflects the value of listed companies and prospect of foreign investors in these companies in the future. If the price falls and the room needs opening, the share price will be like an addict that always needs remedy to grow up. (Vietnam Business Forum)