US embassy cable - 00HOCHIMINHCITY1176

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 001176 
 
SIPDIS 
 
STATE ALSO FOR EAP/BCLTV 
                       UNCLASSIFIED 
 
PAGE 02        HO CHI  01176  01 OF 02  212139Z 
SECDEF FOR OSD/ISA/EA/LSTERN 
 
E.O. 12958: N/A 
TAGS: ECON, PREL, VM, PGOV, SOCI, CIVS, FINREF 
SUBJECT: STOCK MARKET OPENS IN HO CHI MINH CITY 
 
REF:  HCMC 1135 
 
SUMMARY 
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1.  VIETNAM'S FIRST OFFICIAL STOCK MARKET, THE HO CHI MINH 
CITY SECURITIES TRADING CENTER (STC), OPENED JULY 20 WITH 
GREAT FANFARE.  ALTHOUGH THE OPENING OF A SECURITIES MARKET, 
ESPECIALLY SINCE IT CAME ON THE HEELS OF SIGNING THE 
BILATERAL TRADE AGREEMENT, IS SIGNIFICANT AS A SYMBOL OF 
CONTINUED ECONOMIC REFORM, ITS PRACTICAL IMPACT LIKELY WILL 
BE NEGLIGIBLE IN THE SHORT-TERM.  ONLY FOUR COMPANIES WILL 
BE LISTED INITIALLY, FOREIGN PARTICIPATION IS LIMITED, 
FLUCTUATION MARGINS ARE TIGHTLY CONTROLLED, AND BALANCE 
SHEETS OF LISTED COMPANIES WILL REMAIN OPAQUE.  END SUMMARY. 
 
STOCK MARKET OPENS 
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2.  THE HO CHI MINH CITY SECURITIES TRADING CENTER (STC) 
OPENED JULY 20 IN AN AS-YET UNREFURBISHED 85-YEAR-OLD 
BUILDING LOCATED IN THE HEART OF THE CITY.  ACTING CONSUL 
GENERAL JOHN ATTENDED THE OPENING, WHICH FEATURED A RIBBON- 
CUTTING LED BY FORMER PRIME MINISTER AND PARTY ADVISOR VO 
VAN KIET, AND AN OPENING SPEECH BY FIRST DEPUTY PRIME 
MINISTER NGUYEN TAN DUNG. THE EVENT, WHICH ATTRACTED A LARGE 
AUDIENCE OF LOCAL AND FOREIGN BUSINESSMEN, THE CONSULAR 
                       UNCLASSIFIED 
 
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CORPS, AND INTERNATIONAL PRESS, TOOK PLACE AMIDST UNUSUALLY 
TIGHT SECURITY, WITH SURROUNDING STREETS BLOCKED TO NORMAL 
TRAFFIC. 
 
3.  DPM DUNG TOLD THE AUDIENCE THAT THE OPENING OF THE STC 
DEMONSTRATED THE GVN'S "FIRM DETERMINATION TO BUILD EVER 
UNIFORM MARKET COMPONENTS OF THE ECONOMY."  THIS SENTIMENT 
WAS ECHOED IN THE INTRODUCTORY COMMENTS BY NGUYEN DUC QUANG, 
CHAIRMAN OF THE STATE SECURITIES COMMISSION, WHO NOTED THAT 
THE CREATION OF THE STC WAS THE NATURAL NEXT STEP IN 
ECONOMIC DEVELOPMENT FOR VIETNAM.  QUANG CAUTIONED, HOWEVER, 
THAT THE TWO YEARS PREPARATORY PERIOD FOR THE OPENING WAS 
INADEQUATE FOR SUCH A LARGE TASK, BUT THAT THE LIMITED 
OPENING WAS "AN IMPORTANT REHEARSAL FOR A MODERN AND 
DEVELOPED STOCK MARKET IN THE FUTURE." 
 
NUMEROUS CONSTRAINTS 
-------------------- 
4.  AS REPORTED IN REFTEL, THE MARKET WILL OPERATE UNDER 
NUMEROUS TRADING CONSTRAINTS, NOT THE LEAST OF WHICH IS THAT 
ONLY FOUR COMPANIES WILL BE LISTED INITIALLY.  PRICES WILL 
NOT BE PERMITTED TO FLUCTUATE MORE THAN FIVE PERCENT DAILY, 
AND STRINGENT CAPS WILL BE SET ON FOREIGN OWNERSHIP. 
MOREOVER, THESE CAPS DICTATE THAT IT WILL BE VIRTUALLY 
IMPOSSIBLE TO MAINTAIN THE MANDATED SINGLE PRICE ON SHARES, 
SINCE THEY CREATE A VIRTUAL SECOND MARKET FOR FOREIGN 
INVESTORS. 
 
OPINIONS OF FOREIGN BANKERS MIXED 
----------------------------------- 
5.  A SEASONED AMERICAN BANKER TOLD ACG ON THE EVE OF THE 
                       UNCLASSIFIED 
 
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OPENING THAT THE STOCK MARKET "WAS A JOKE."  THIS OBSERVER 
FOCUSED NOT ONLY ON THE PROBLEMS CITED ABOVE, BUT ALSO ON 
THE OPAQUE NATURE OF VIETNAMESE BOOKKEEPING STANDARDS. 
UNTIL TRANSPARENCY IMPROVED SIGNIFICANTLY, FOREIGN INVESTORS 
WOULD LIKELY IGNORE THE STC.  HOWEVER, ANOTHER AMERICAN 
MERCHANT BANKER (WHO WAS DISTRIBUTING FLYERS FOR HIS 
MERCHANT BANK AT THE OPENING CEREMONY) TOLD ACG THAT THE 
POTENTIAL FOR THE MARKET 24 MONTHS OUT WAS SIGNIFICANT.  HE 
PREDICTED THAT THERE WOULD BE 150 TO 200 COMPANIES LISTED BY 
THAT TIME, AND THAT INDUSTRY AND SECTORAL FUNDS, SUCH AS 
HIS, WOULD BE REWARDING FOR FOREIGN INVESTORS. 
 
COMMENT: A POSITIVE START; SUBSTANCE TO FOLLOW? 
--------------------------------------------- -- 
6.  COMING ON THE HEELS OF THE SIGNING OF THE BTA, THE 
OPENING OF THE STOCK MARKET ATTRACTED SIGNIFICANT 
INTERNATIONAL PRESS ATTENTION THAT CENTERED ON VIETNAM'S 
TRANSFORMING ECONOMY.  ALTHOUGH THE OPENING OF THE MARKET IS 
SYMBOLICALLY SIGNIFICANT, REGULATORY RESTRICTIONS AND 
CORPORATE PRACTICES INDICATE THAT THE MARKET WILL HAVE 
MINIMAL IMPACT ON THE VIETNAMESE ECONOMY IN THE NEAR FUTURE. 
VIETNAM WILL HAVE TO WORK HARD ON SUPERVISING THE NEW 
MARKET.  IF THE NEW MARKET CAN CAPTURE SOME OF THE INFORMAL 
TRADING ACTIVITY THAT HAS ALREADY BEEN TAKING PLACE, ALL THE 
BETTER.  THAT HO CHI MINH CITY IS THE VENUE FOR VIETNAM'S 
FIRST STOCK MARKET IS ALSO GOOD.  DESPITE THE PERSISTENT 
BACKWARDNESS OF ECONOMIC THEORY IN THE NORTH, HO CHI MINH 
CITY'S ECONOMY IS `DE FACTO' TAKING ON MANY OF THE 
CHARACTERISTICS OF MARKET ORIENTATION. 
 
JOHN 
 
                       UNCLASSIFIED