Over the past 11 years, the Vietnamese stock exchange mobilised about US$20 billion from various domestic and foreign sources to help enterprises improve their operational efficiency.
But in the last few years, it has been facing a lack of balance. Indexes dropped steadily, investors lost confidence, money flew out of the market and stock values plummeted. By late 2011, the Vn-Index had fallen 25 percent and liquidity was half that of the previous year.
The crash was partly attributed to the world economic slowdown, but the main cause lied in internal market issues which, according to experts, will destroy investors’ confidence if not solved.
In 2000, Vietnam had six securities companies and only two stocks were listed. Several years later, the market saw a boom with companies aiming to make a profit from their own stocks. Now, 105 securities companies are operating in a market of just 1.2 million accounts.
Many economists believe no more than 20 to 30 companies should be allowed to operate in the market. Nguyen Thanh Ky, Secretary of the Vietnam Association of Securities Businesses, says the absence of standards for releasing financial statement information has led to a lack of publicity and transparency in stock information in Vietnam over the past few years. As a result, companies and investors have become skeptical about the market.
Companies have insisted on listing their shares despite weak management and lack of transparency. In the past two years, many listed companies suffered losses, impacting the value of the stocks and the trust of investors. Several companies even had to cancel their listings to save the value of stocks, which were plummeting dramatically. It was considered a bad move by foreign financial experts but was an acceptable way in Vietnam.
Analyst Do Bao Ngoc from the Hanoi Building Commercial joint Stock Bank (Habubank) points to the fact that stocks of many companies are falling below their book values, putting pressure on successful companies.
To cope with the issue, the State Securities Commission has drafted a plan to restructure the stock market, beginning the second quarter of this year. The project will proceed in two phases until 2015. From now until April 1, the Committee will monitor ailing companies and scrutinize their financial reports to come up with appropriate solutions. The next step will be to restructure the entire stock market by selling off bad accounts, zoning debts and scaling down activities.