Analysts ask for changes in Securities Law

Monday, June 23, 2008
The current Securities Law needs changing in order to more effectively offer legal protection to every member of the stock market, according to securities analysts.

Over the past year that the law has been in effect, they have analysed its effectiveness, and released the findings earlier this week.

Foremost among concerns, is the need for a legal framework for stock retailing by public firms, as well for the auctioning and listing shares of foreign-invested firms.

Nguyen Van Thanh, an analyst from Da Nang Securities, said, "The number of foreign-invested firms in our country is significant. There should be a regulation allowing them to sell shares in our local stock market."

The opening up of such firms would make the market more active, providing investors with more chances to invest, he added.

The problem however, is that many foreign-invested companies are unsure how to proceed. According to Nguyen Vu Quang Trung, deputy director of Ha Noi Securities Trading Centre, one of the most frequently asked questions by foreign-invested companies in Viet Nam, is how to list shares in the local stock market.

As there is no regulation covering this, the process of listing shares in the market is difficult, Trung said, noting that demands for clearer guidelines are increasing from all sides.

"The rules for stock retailing should be tightened so as to avoid the dilution that occurs when firms offer too many shares at a time," said John Nolan, an analyst from a HCM City fund management company.

He added that strict regulations would help manage the volume of shares in the stock market, preventing it from the share-overload that is currently evident.

The Securities Law also regulates derivatives such as options, margin trading, and future contracts. However, these instruments have not been implemented yet.

Le Ho Khoi, director of Trang An Securities, said that these instruments were the basis of defining a securities company as a real financial institute, not simply by the activities of brokers in each trading session.

These derivatives also help investors reduce risk in securities investment, Khoi added, noting them as an important lever for the future development of the exchange.

Nguyen Trong Nghia, head of the Legislation Division at the Ministry of Finance, said that the Vietnamese stock exchange was young and would naturally experience ups and downs, but these help highlight important matters to the regulators.

As a result, changes in the Securities Law are necessary as it has only been in existence for a year, he added.

Vu Thi Kim Lien, vice chairman of the State Securities Commission, said it would collect the ideas from market members to complete the draft of the revised Securities Law by the end of this year.

She added that those elements which are legally adjustable will be drafted and sent to the Ministry of Finance for permission to implement this year. (VNS)

Seeking a panorama for Vietnam’s economy

Monday, June 23, 2008
Normal people don’t trade stocks, don’t invest in real estate, don’t import luxury cars – so why do they have to suffer the current difficulties?

When international financial institutions make economic analyses, they make comments based on the viewpoint of protecting investors, their customers, so is there anybody to analyse economic prospects for the common interests or the interests of normal people who don’t hold any US dollars or shares?

While foreign reports focus on financial matters, Viet Nam needs a panorama of the economy, based on more basic factors.

Trade deficit: After reaching the record high level of US$14.4 billion after the first five months of 2008, the trade deficit is slowing down due to different factors. Last year share prices surged and many people spent freely, which was proven through statistics of imported cars and luxury commodities.

As money is scarce at present, Viet nam can’t import a great deal of commodities. The quiet real estate market will also result in a lower demand for construction materials. There is some evidence for these propositions: imported cars are selling slowly; imported steel is being re-exported; the sales of locally-assembled cars in May fell by nearly 1,800 units compared to April, which will result in fewer car components being imported.

While the exchange rate is fluctuating towards the trend that the US dollar is revaluating over the VND, importers are having difficulties buying USD so imported goods are more expensive. But how do we encourage exports to reduce the trade deficit when many export items rely on imported materials?

Flexibility in the exchange rate is a way to enhance the competitiveness of Vietnamese goods in the international market – a flexibility in the value of the VND based on a basket of foreign currencies of Vietnam’s fellow traders, not only on the USD. The monetary and public finance tightening policy, if it is performed seriously and resolutely, will also help lessen the pressure of the trade deficit in the remaining months of 2008.

Actually, the trade deficit is going down: from $3.3 billion in March to $2.8 in April and $2.6 billion in May (source: Barclays Capital). This reduction needs to be boosted to create positive influences on other norms, especially the balance of payment.

Inflation: it is difficult for Vietnam to take measures to curb inflation while gas and food prices are increasing highly in the world, which also cause worries of inflation for other countries in the region. Nevertheless, as many experts have said, inflation in Vietnam is much higher because of its loose monetary policy in previous years. Now as credit is being tightened, the supply of money isn’t increasing remarkably; inflation will likely decrease in the upcoming time when this policy begins taking effect.

The World Bank’s data shows that the money supply has fallen by 10% year on year, consistent with a decrease of imports. According to the WB’s Taking Stock report, which was released at the recent mid-term Consultative Group Meeting in Sapa, Lao Cai, if the food factor is excluded, the price index has been falling since March.

It is necessary to note that the people’s expectations for inflation play a significant role in deciding the price tendency. Therefore, the interest rate policy must be linked with inflation control. Interest rates must be raised to ensure profit for depositors, and thus, the monetary policy would be able to take effect quickly.

Other norms: agricultural, forestry and aquatic production are still growing 2.9% year on year. However, Vietnam seems to be not taking advantage of the increase of food prices in the world so farmers don’t benefit much. In fact, they are suffering difficulties because businesses don’t have money to buy their products to export.

Industrial production value in the past five months maintained a growth rate of 16.4%, except for the construction industry. The WB’s report Taking Stock says though Vietnam has reduced its GDP growth rate target this year to 7%, GDP in 2008 will be still higher than the country’s expected number, based on the growth impetus of 2007.

“Though the development pace of the construction sector will decrease to zero percent in the remaining months of the year while other industries will maintain the growth rates of quarter 1, GDP growth rate will be around 7.5% in 2008,” the report says. Though Vietnam will have to pay to struggle against inflation, in the short term, the cost of the growth rate will be not too high. But the government must definitely say ‘no’ to the pressure of maintaining a high growth rate from industries and provinces.

As psychological factors play an important role in stabilising the market, we should review some financial and monetary factors to have an objective view.

Balance of payment: According to Prime Minister Nguyen Tan Dung in his talks with David Fernandez, JP Morgan Chase’s chief economist, Vietnam’s balance of payment in the first five months of 2008 was in surplus, around $1 billion, and it will be $2-3 billion for 2008. Disbursement of FDI projects is over $1 billion a month.

The WB’s report also shows similar figures: deficit of current accounts in 2008 is estimated at $11.3 billion and it will be compensated for by surplus of capital account of around $14.8 billion. Therefore, the balance of payment will be in surplus of around $3.4 billion. These are the figures that the market needs to reject rumours of Vietnam’s crisis of payment balance (see the below table).

However, from this angle, the market needs flexible forex policies to contribute to reducing the trade deficit and enhance the competitiveness of Vietnamese commodities, raising incomes of workers in the foreign-invested sector, whose minimum salary is calculated based on the USD, and revoking speculation tools of the foreign financial circle. The inflation rate must be remembered when the government conducts the exchange rate, not only for the USD but also other foreign currencies.

Impacts on people: financially-powerful interest groups have a strong voice while interest groups representing the poor, especially farmers, nearly don’t exist.

Policy conduct must be kept out of foreign investors’ influences. Vietnam’s statement that it will not devaluate the VND suddenly goes to that direction because if the VND devaluates, there will be strong impacts on inflation, cause difficulties for the monetary tightening policy and the poor will be the major suffers.

Up to 73% of the population lives in the countryside. If policies enhance farmers’ purchasing power, the local market will be the support pillar for small-and medium-sized enterprises.

Portfolio investment flow: foreign investors are holding around 25% of listed firms’ stocks, both on the official and the over-the-counter markets. So the total portfolio investment capital is around $7-8 billion and most of it belongs to closed funds. There is around $2.5 billion of hot capital, plus around $5 billion of bonds owned by foreigners.

“Vietnam’s foreign currency reserve is equivalent to 360% of foreign debts,” comments Dragon Capital. Information about the high increase of NFD (non-deliverable forward) USD/VND exchange rate is not related to the real exchange rate and the people must be informed about this because the fluctuations in the stock market and the forex market are mainly caused by the psychologies of local investors.

The most important thing is once we define the reasons for the current situation are the monetary, fiscal policies and state-owned corporations’ investment, we have to persistently and resolutely perform set solutions.

It is necessary to control the impact of financial activities on production and business. The two have close relations, but in Viet Nam financial activities have just emerged in recent years.

ANZ calls for ending dual dong rate for importers, banks

Monday, June 23, 2008
Viet Nam must narrow the 10 percent difference between its two exchange rates to restore confidence in the dong, Australia & New Zealand Banking Group Ltd. has said.

The dong rate used by some commercial banks has fallen to as low as 18,000 per dollar, ANZ said, compared with the 16,611 rate used by selected importers.

The central bank should intervene with banks to unify the two rates, economist Paul Gruenwald at ANZ wrote.

“Benign neglect of the parallel market is fraught with risks,’’ the Singapore-based Gruenwald, head of Asian economics at the bank, wrote in a research note which he confirmed by telephone.

A weakening of the dong in the unofficial market “could set in motion inflation and capital outflows which may be difficult to manage.’’

Three credit-rating companies have cut Vietnam’s debt rating outlook since May, and Morgan Stanley last month said the dong is set for a “currency crisis’’ as inflation has risen to 25% and the trade deficit has surged.

The government does not plan to let the dong depreciate because it would affect the economy, Finance Minister Vu Van Ninh said June 15.

The central bank weakened the dong reference rate by 2% on June 11 to prevent currency speculation.

The currency is officially allowed to trade 1 percent either side of this.

Central banks intervene in currency markets by buying or selling foreign exchange.

Lost relevance

Forwards contracts are pricing in a 30% drop in the next year, after taking into account interest-rate differentials, according to offshore 12-month non-deliverable forwards at 23,975 per dollar.

Forwards are agreements in which assets are bought and sold for future delivery at prices determined now.

The official rate “has lost its relevance as a price signal,’’ Gruenwald wrote.

Vietnam is unlikely to face a currency depreciation like that of Thailand in 1997 as it has sufficient foreign-exchange reserves to defend the dong, ANZ said.

“The trick is therefore to maintain domestic confidence’’ and prevent conversion of dong assets into dollars, the note said, adding that estimated foreign currency deposits are 25% of total deposits compared to over 40% in 2000.

The central bank should also add to interest-rate increases to increase the allure of the nation’s assets and reduce government spending, Gruenwald wrote.

The central bank has raised the benchmark interest rates three times this year to 14 percent, the highest in Asia, as the government tries to curb accelerating inflation by tightening credit and cutting the supply of money. (Bloomberg)

VPBank Raises Deposit Rate to 18.8%

Monday, June 23, 2008
Viet Nam Joint-Stock Commercial Bank for Private Enterprises, known as VPBank, has raised the rate on deposits held for six months to 18.8%, the Dau Tu newspaper reported.

The State Bank of Viet Nam this month raised its benchmark interest rate to 14% from 12% to cool inflation.

PetroVietnam, Pha Lai Thermal, Sacombank Stocks On June23

Monday, June 23, 2008
The Ho Chi Minh City Stock Exchange's VN-Index rose 2.93, or 0.8%, to close at 368.95, climbing for the first time in four days. The following shares were among the most active in the market.

Financial companies: Saigon Securities Inc. (SSI VN), the country's biggest publicly traded brokerage, rose 800 dong, or 3%, to 27,800. Saigon Thuong Tin Commercial Joint-Stock Bank (STB VN), known as Sacombank and the exchange's fifth-biggest company, climbed 500 dong, or 2.5%, to 20,200.

The State Securities Commission of Vietnam, the nation's market regulator, is drawing up a plan to set up a fund to stabilize the stock market, the Dau Tu Chung Khoan newspaper reported, citing Chairman Vu Bang.

PetroVietnam Drilling & Well Services Joint-Stock Co. (PVD VN), a provider of services to the oil and gas industry, gained 1,500 dong, or 2.3%, to 66,500. Crude oil for July delivery rose 2% to settle at $134.62 a barrel in New York on June 20.

Pha Lai Thermal Power Joint-Stock Co. (PPC VN), Vietnam's largest publicly listed coal-power company, declined 700 dong, or 2.8%, to 24,100. Power station coal prices at Australia's Newcastle port, a benchmark for Asia, climbed to a record, rising 1.5% to $162.66 a metric ton in the week ended June 22, according to the globalCOAL NEWC Index.

Viet Nam May Set Up Stock Stabilization Fund

Monday, June 23, 2008
The State Securities Commission of Viet Nam, the nation's market regulator, is drawing up a plan to set up a fund to stabilize the stock market, Dau Tu Chung Khoan newspaper reported, citing Chairman Vu Bang.

The fund will buy stocks when the market has difficulties and sell shares when the market is doing well, the report said.

The State Securities Commission (SSC) last week lifted a limit for gains or losses on the stock exchange in an attempt to boost trade and improve the market investments.

Vietnam's 1st Half GDP Seen Up 6.7%, Jun CPI Up 2.2%

Monday, June 23, 2008
Viet Nam's economy is projected to have expanded 6.7% in the first half of this year and the consumer price index to have risen 2.2% in June from May.

"The economy is forecast to have grown 6.6%-6.7% in the first six months and will reach the target of 7% growth set by the National Assembly for this year," Viet Nam News Agency said, citing the Ministry of Planning and Investment.

A 2.2% rise in the CPI in June would be slower than the 3.9% increase posted in May, government figures show.

Between January and June, the country issued licenses for foreign investment projects valued at $31.6 billion, exceeding the $21.3 billion recorded in 2007, the agency said.

"This indicated that foreign investors believe in Vietnam's social and political stability," the agency added.

Viet Nam is expected to release its official statistics for the economy next week. (Dow Jones)