2nd Vietnam bourse seeks raison d'etre
HANOI - One week after the Hanoi stock exchange was due to open on Jan. 20, its doors remain firmly shut. With no one quite sure what it is supposed to trade and activity on the country's first bourse in Ho Chi Minh City still minimal, the padlocks come as little surprise.
Vietnam opened its first exchange - the Ho Chi Minh City Stock Trading Center - in July 2000 but since then there are only 26 listed companies valued at between VND30 billion and VND225 billion ($1.9 million and $14.3 million). Daily trade in their shares has been worth just VND2 billion-VND3 billion, so far this year. "It seems a little premature to be setting up a second exchange when the first one is just taking off," said Rick Mayo-Smith, managing director of Indochina Capital in Ho Chi Minh City. Yet the Hanoi exchange - on the drawing board since the mid-1990s - will come into being anyway: too much money and political capital has been invested in it.
Finance Minister Nguyen Sinh Hung told Dow Jones Newswires last week that he hopes to transform Vietnam's centralized economy into a shareholding economy over the next five years. To do that, he must increase awareness of, and trading on, the country's equity markets. Hung hopes to see the Hanoi exchange operational " in the spring". Vietnam is opening its economy and trying to attract foreign investors. It has signed a series of market-liberalizing bilateral trade deals - the most significant with the US in 2001 - and hopes to join the WTO either this year or in 2006. Observers say the possible listing of Asia Commercial Bank later this year in Ho Chi Minh City could spur other large listings. The semiprivate bank is one of Vietnam's best, with registered capital of VND480-billion ($30.5 million).
Needs Purpose
But an exchange that "just mirror(s) the services offered down south (Ho Chi Minh City bourse) doesn't make sense," according to Peter Ryder, Indochina Capital's Hanoi-based director. Also, replication could lead to turf wars, where fights between the two exchanges - each unwilling to let the other prosper - will further slow the development of the country's equity market.
Vietnamese companies do not view the stock market as a vehicle for raising capital (something they prefer to do through banks) and see few other reasons to suffer the financial scrutiny a listing requires. That's made it very hard to attract firms to the southern bourse. Yet Ryder and others believe Vietnam could make a northern bourse work if it offered a significantly different service to that offered in Ho Chi Minh City. To that end, the State Securities Commission (SSC) has been trying out various different looks for its Hanoi facility.
Initially, it said the northern exchange would focus on smallcap stocks, leaving larger firms to list in Ho Chi Minh City. But talk of a smallcap market has faded. Shares in Ho Chi Minh City are "already mini. Hanoi would be micro," said Ryder. More recently, talk of using the Hanoi facility to formalize a large and growing over the counter market "could be very exciting," he noted.
Many of the companies that now sell shares over the counter are larger and more attractive than their listed counterparts. Shares in ACB and other respected semiprivate banks, as well as majority-state-owned giant Vinamilk, are actively traded on the OTC market. A key step in the long term development of Vietnam's equity market is "to see OTC trading bought onto a more formal platform," according to John Shrimpton, director of investment fund Dragon Capital in Ho Chi Minh City. He noted that daily trade in unlisted shares was around $500,000 last year, much more than trade in listed ones.
However, if Vietnam does formalize its gray market with a regulated clearing house in Hanoi, it will have to find ways to draw the unlisted companies that now shy away from financial scrutiny to the new OTC exchange. A Hanoi exchange, whatever form it takes, will help raise awareness of equity investment among northern investors and could persuade those who still store cash under their mattress to park it in a more 21st-century investment vehicle, observers said.
Several securities firms have offices in Hanoi and the city's residents can invest in Ho Chi Minh City exchange-listed stocks through them, but a Hanoi exchange would provide "on-the-doorstep experience of what a stock market is," said Shrimpton. Officials at the Hanoi exchange are tightlipped about when their facility will open for business. They have already missed a vague 2003 launch target, seen a similar 2004 deadline slip by, and failed to meet the Jan. 20, 2005 date. Finance Minister Hung's promise of a spring time launch was deliberately vague.
"In many ways, this may be a rerun of the launch of the (Ho Chi Minh City) stock market," when a series of much-touted target dates were missed before the launch finally took place, said Shrimpton.
By Catherine McKinley - Dow Jones Newswires - January 27, 2005
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