To bring more motivations to the security market, the State Securities Committee (SSC) will propose an idea of loosening regulations on securities possession rights for foreign investors in Vietnamese companies. It is considered an action to attract foreign investors to Vietnam’s securities market.
Opportunity for the securities market
According to Mr Vu Bang, SSC Chairman, limit of securities possession proportion of foreign investors in public companies is planned to increase (currently, foreign investors can posse maximum 49 percent of stock). The SSC asked for advice from the Finance Ministry to propose this plan to the Government next month.
In the context of economic difficulties, especially in the real estate market, a crucial factor deciding the development of the securities market – foreign investors, seem to be indifferent with the market. Therefore, foreign capital is targeted as a medicine to stir up this domestic market. According to statistics of the SSC, for the first 5 months this year, Vietnam’s securities market has received the largest foreign inflow since 2008; VN – Index has become the best performed index in the Southeast Asia. However, capitalisation value of Vietnam’s securities market currently reaches on US$44.6 billion; 14 times lower than that of US$621.4 billion of Singaporean securities market – the largest market in the region.
As a foreign investor, Mr Dominic Scriven, CEO of Dragon Capital said that SSC’s plan satisfies the expectation of foreign investors. It will have positive influence on the securities market.
Macro-economic difficulties are impacting badly on the securities market. Due to low liquidity and lack of trust of investors, the market is experiencing a very difficult period, listed companies announced unpromising financial statements for the first quarter. About one fifth of the listed companies are forecast to suffer loss this year. Foreign investors are putting their last hope on plans of dealing with bad debts, restructure of banking system and state enterprises.
Capital mobilizing through the securities market of listed companies has also sharply reduced for the last 5 months (about 50 – 60 percent over the same period last year). Therefore, to improve market’s liquidity, capital market research group proposed the SSC to allow T+0 or T+1 transaction.
Many methods should be used
Assessing Vietnam’s securities market, Mr Dominic Scriven said that, actually the market has shown recovery since 2012. However, this recovery has not been based on a stable foundation because most of listed companies are weak with low liquidity. Although Vietnam’s securities market experienced point reduction, which attracts attention of foreign investors, they are mainly standing out of the game, watching and waiting for opportunities.
According to securities market research group, although exchange time was lengthened, liquidity of the market has not been improved, trading band rate is an obstacle for natural price fluctuation. Therefore, the research group suggested widening current trading band by stopping exchange within 30 minutes when price differences make about 7 percent – 10 percent for both VN – Index and HNX – Index. After 30 minutes, stocks will continue to be traded at a new reference price (that is the ceiling price or floor price at the moment before exchange was stopped). This solution is believed to help the market remain stable, as well as reduce limitations of regulations on current trading band rate.
Mr Scriven also said that the SSC should promote the restructure, M&A of securities companies to reduce their number and improve their quality, financial capacity in order to make the market healthy. The SSC must also examine financial capacity, company management, risk management to ensure system security, as well as study regulations on compensation, asset security and legal rights of investors who open accounts in securities companies in case of bankruptcy, liquidity loss.
According to investors and experts, if proposals are simultaneously applied, it is very likely that the securities market will recover.