Many hands rose with urgent questions after a discussion with Deputy Finance Minister Le Thi Bang Tam at a recent meeting between foreign investors, financial experts and the Ministry of Finance (MoF). One American investor asked: “Is there a connection between the financial market and the growth of the Vietnamese economy? The stock market has opened but it is developing slowly. How long will investors have to wait?”

Dominic Scriven, Director of the Dragon Capital Fund Management Company, an expert on the Vietnamese financial market, ultimately said: “Vietnam is not the place for profit earning in the short term, but for the long run.”

Identifying Vietnam’s financial markets

“The scale of the Vietnamese financial market is too small compared to the needs of investors. The volume of bonds that the government has issued recently is roughly US$2bil, but only $800mil is listed on the stock market. The stock market also lacks organizational investors while the official and the OTC markets are still just starting,” Ms Tam said during the meetings.

In that situation, how much foreign capital can the Vietnamese market absorb? According to Julie Hunter from ANZ Bank, investors must be able to define the terms of their investment in Vietnam because the country still lacks a business rating mechanism.

Norikita Akamatsu, financial and private sector coordinator of the World Bank in Hanoi, said also that it is most challenging for Vietnam is the lack of awareness among the people and certain government ministries of the true nature of the financial market.

“The financial market can’t be built through the administrative instructions of the government or a ministry, like the Finance Ministry. Policymakers must understand that investors and the stock market are among core elements of the economy and it is difficult to understand the rules of the stock market, and whether it appeals to different subjects,” Mr Akamatsu emphasised.

A typical example is the Vietnam Dairy Products Company (Vinamilk). At the time of restructuring, Vinamilk was assessed by company officials at US$100mil, but when it went to the bourse, was found to be more like $700mil.

Thus, Vietnam still lacks experience assessing its enterprises, which hurts many companies and investors. The gap between the value of an enterprise evaluated by the enterprise itself and the value assessed by professional assessment companies may reach millions of US dollars.

From MoF’s interest rates and market interest rates

Deputy Finance Minister Bang Tam said that the government would speed up restructuring to bring more companies to the bourse in an effort to increase the scale of the stock market three-fold compared to 2005.

MoF is urgently compiling a law on bonds issuance, including government and corporate bonds. “The current interest rate is not suitable for the market. We must do what we can to facilitate the one who needs money and the one who has money to meet each other and foreign investors can get involved,” Ms Tam said.

The problem, according to investors, is that the government’s methods for defining interest rates for government bonds are unreliable. Vietnam doesn’t have rates for 15-year term bonds and interest rates for bonds with terms of 12 months and upwards are different. Therefore, when companies issue bonds, they don’t have criteria to define the interest rate for their bonds. The lack of standard interest rates also affects bond transactions.

“In the next few months, MoF will not define the interest rate for bonds,” said Ms Tam. “We are approaching market interest rates. The interest rate must be decided by the market soon,” she added.

But MoF has discussed with international institutions standardisation of Vietnam’s short-term and long-term bonds under international standards and Ms Tam admitted that government bonds are sometimes issued as ‘negotiable’ so they can be set to a rate more attractive than those offered by banks.