Vietnam suffers growing pains
HONG KONG - If Vietnam wanted a reminder of the unpredictability of a market economy it need only
look at the fortunes of its stock exchange.
Prices of the 19 stocks listed on the tiny market have bounced around wildly since the
bourse opened in July 2000 even as the government has introduced reforms aimed at
stabilising trading and improving liquidity.
"It's a whole process of evolution in a market like this, when you're going from
nowhere to somewhere," said Dominic Scriven, investment manager at Dragon
Capital Management in Ho Chi Minh City.
The market's benchmark index began life at just above 100 points but by the middle of
last year had soared to a high of 571.4 on investor over-exuberance.
The government responded by introducing measures to contain the bubble but in the
process sent the index tumbling back down to 235.40 points by the end of the year. In
2002, the index has continued to fall, on Monday ending down 0.93 points, or 0.5 per
cent, at 183.62 - a decline of 22 per cent on the year.
The market's performance is reflective more of teething problems in the country's
financial system than of weaknesses in the underlying economy, which has revived
since the government introduced more reforms favouring the development of the
private sector last year.
The country is the biggest exporter of footwear to the European Union, has a private
banking sector larger than China's and is advancing into agro-industry and IT and
software.
The World Bank expects Vietnam to report gross domestic product growth of 6 per
cent this year and export growth of 7 per cent. "As in the 1990s, Vietnam could be
entering a phase of prosperity," the World Bank said in a report on its 2003 outlook for
the country.
Despite these gains, the stock market is still marginal with a total capitalisation of
about US$190m, or only 0.3 per cent of GDP. It consists of former state-owned
enterprises, of which the largest is Gemadept, a container port operator, followed by
Ree, a manufacturing conglomerate, and SAM, a cable and telecommunications
material company.
Dragon Capital's Mr Scriven said the next step for the market is to attract more of the
country's unlisted shareholder companies, which have total equity estimated at about
US$1bn. This will occur as more of them seek to raise capital for expansions.
"That process will occur for example in the banks in the next 6 to 9 months," said Mr
Scriven.
Other initiatives that will help the market grow include the planned phased
privatisation of 3,000 state-owned enterprises and efforts to establish a domestic
institutional investor base.
In the near-term, the market will gain from government moves to widen a daily limit on
share price movements from three per cent to five per cent and to allow buy and sell
orders to be matched twice in a day rather than only once as at present.
The final catalyst is more simple. Mr Scriven says the market is cheap - the average
prices/earnings ratio is only about 7 times, dividend yield is 6 per cent and corporate
earnings are forecast to grow 20 per cent this year and 16 per cent next year.
Once a boom in the real estate sector wears off, the stock market could see another
stampede of capital in its direction.
"It would not take much more than US$30m out of that [the money invested in real
estate] to decide the stock market was a better place to play to have a significant
impact on prices and turnover," said Mr Scriven.
By Joe Leahy - The Financial Times - December 9, 2002.
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