Tran Dac Sinh, director of the Ho Chi Minh City Securities Trading Center, told Bloomberg that Vietnam wants to increase the value of its stock market to between 20 percent and 30 percent of gross domestic product from 6 percent.

GDP may reach $80 billion by 2010, he said. The current average for stock markets in Asia is about 127 percent, according to estimates by Merrill Lynch & Co.

“I really want to see this securities trading center become as big as other stock exchanges in the region,'' Sinh said in an interview last week.

The Vietnamese government is drawing up a securities law to improve companies' disclosure standards, hoping to attract more international investors to an economy it says will grow as much as 8 percent annually in the next decade.

Sales of shares in state-owned companies may accelerate the stock market's growth as the government seeks to sharpen the ability of government firms to compete after Vietnam joins the Word Trade Organization this year.

“Even if it doubles, it's still not a very large market, but obviously it's a quantum leap,” said Kelvin Lee, Head of Investment Banking at Ho Chi Minh City-based VinaCapital Group, which manages $600 million of investments in Vietnam.

“The question is whether it has sufficient improvement to attract the real, serious investors.”

Upcoming sales

Bank for Foreign Trade of Vietnam will sell shares next year, followed by Mekong Delta Housing Bank, Bank for Investment & Development of Vietnam and Industrial & Commercial Bank of Vietnam (Incombank), Sinh said. VietNam Insurance Corp., Hochiminh City Insurance Co., Electricity of Vietnam, Vietnam Post & Telecommunications Corp. and steel and cement companies will also sell shares by 2010, Sinh said. All the companies are government-owned.

Vietnam, which began market-oriented reforms in 1986, has the fastest-growing stock market in Asia.

There are 48 companies on the six-year-old Ho Chi Minh City Securities Trading Center, with a combined market value of about $3 billion.

Vietnam's stock exchange increased 50 percent in market value on July 12 after shares in Saigon Thuong Tin Commercial Joint-Stock Bank made their debut.

Twenty-two more companies will sell shares on the exchange in the next four months, raising the market value to 10 percent of Vietnam's gross domestic product by the end of the year, Sinh said.

Gross domestic product was $53 billion at the end of 2005, according to data from Vietnam's General Statistics Office. The economy is projected to grow 8 percent this year.

Accelerating process

Vietnam has been selling shares in companies after first converting their ownership structure into stockholdings. The shares tend first to be sold to a company's managers or other employees.

“We have to accelerate the” transformation, Sinh said. “By 2010, the process must be finished.”

Vietnam wants to encourage about 2,400 companies whose shares exchange hands in the unregulated over-the-counter market to formally trade stock. The companies together trade between five and 10 times the main board's value, Merrill said in a report in April.

The informal market doesn't subject participants to the same disclosure requirements as those who sell shares on the stock exchange.

“The problem is many of these companies don't meet the requirements, so rather than list on the stock exchange, they issue shares to their customers and other people, their friends and families,” said Peter Tebbutt, a Hong Kong-based director at Fitch Ratings.

“The over-the-counter market is getting quite well developed, it's much larger than the official market. That makes it more attractive.”

Over the counter

The Ho Chi Minh City Securities Trading Center's VN Index, which tracks stocks traded on the main board, has lost 24 percent of its value since reaching a record 632.69 on April 25.

A securities law that comes into effect in January seeks to lay out standards of disclosure and governance for all companies, whether they trade in the over-the-counter or the formal exchanges in Vietnam. The government is also offering tax incentives for companies to shift the trading of their shares to the exchange.

“In Vietnam, the question is always implementation,” said Jonathan Pincus, senior country economist at the United Nations Development Program in Hanoi. Will the provision for accountability and transparency “be enforced so that companies will have to abide by the laws and investors know exactly what they're getting when they buy shares?”

Having a capital market is very important to Vietnam's future, Pincus said. “At the same time, you need capital markets that are transparent, where companies are actually reporting what they're doing,” he said. “The quality of management is certainly improving. But they still have a long way to go.”

Source: Bloomberg