US embassy cable - 04HANOI719

UNCLAS SECTION 01 OF 02 HANOI 000719 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, ETRD, VM, FINREF 
SUBJECT:  RECENT DEVELOPMENTS IN VIETNAM'S STOCK MARKET 
 
1.  (U) Summary.  Econ Counselor met with State Securities 
Commission (SSC) Vice Chairman who spelled out his vision 
for expanding Vietnam's capital markets.  The Vice Chairman 
confirmed the Prime Minister's recent decision to place the 
SSC directly under Ministry of Finance authority.  DPM Vu 
Khoan has been pushing for more listings on the local stock 
markets.  The SSC and its young staff are working to prepare 
for a more active financial market.  End Summary. 
 
2.  (U) February 25, Econ Counselor called on State 
Securities Commission (SSC) Vice Chairman, Nguyen Doan Hung 
and discussed the role of SSC in regulating Vietnam's 
capital markets.  Prior to assuming his current position, 
Hung previously worked at the World Bank in Washington from 
1999 to 2002 as an Alternate Executive Director.  Hung 
served as the Director of the Foreign Exchange Department 
from 1996-1999 and as an Administrator from 1993-1996, both 
at State Bank of Vietnam. 
 
3.  (U) The SSC's 350 person staff regulates the securities 
industry and the Ho Chi Minh City-based Securities Trading 
Center (STC), which was established in July 2000.  Many of 
the SSC's staff are recent college graduates who have 
received training from Thai, Korean, and Taiwanese Stock 
Exchange experts, including short-term training and study 
tours.  According to Hung, the stock market's total 
capitalization currently is about 1,100 billion VND (approx. 
$70 million USD) with 22 listed firms.  The composition of 
22 traded companies on the STC is as follows:  1 company is 
joint stock company and 21 companies are former-state owned 
enterprises (SOEs) that have been equitized.  The state 
ownership in those companies now is between 20 and 30% on 
average.  In most cases, the state still retains part 
ownership of the traded companies.  The STC also trades 
bonds, all but one of which are government-issued.  The bond 
market is valued at approximately 10,000 billion VND 
(approx. US$640M). 
 
4.  (U) Hung stated that the State Securities Commission, 
which currently reports directly to the Prime Minister, 
would move under the authority of the Ministry of Finance in 
the near term, thus losing its status as an independent 
regulator.  The Prime Minister had approved this shift 
earlier in the week.  According to Hung, the justification 
for this move was to push the Ministry of Finance to cause 
more SOEs to privatize or equitize.  Moreover, the Prime 
Minister has assigned the Minister of Finance to work with 
the Ministry of Planning and Investment to encourage large 
companies, including SOE monopolies, to privatize, and 
foreign invested companies to list, on the STC.  Hung also 
said that the GVN might seek to list Vietnam Airlines in the 
future.  Hung attributed the current dearth of STC listings 
to higher standards of corporate governance and 
international standards of accounting disclosures required 
for listing. 
 
5.  (U) The STC is open for business daily with morning and 
afternoon sessions, and utilizes software developed in 
Chicago and provided by the Thai Stock Exchange, according 
to Hung.  All brokerage firms currently operating in Vietnam 
are 100% domestic-owned companies or joint stock companies 
with limited foreign participation.  Banks are not permitted 
to invest directly in the capital market unless they 
establish subsidiary brokerage firms.  According to Hung, 
there have been no instances to date of impropriety or 
insider trading on the STC. 
 
6.  (U) Hung noted that the GVN, especially Deputy Prime 
Minister Vu Khoan, is pushing to increase the number of 
listings on the STC and is developing strategies for 
encouraging major efirms in key industries, such as banking, 
petroleum, and telecommunications, to list.  (Note: 
According to press reports, the Prime Minister met with the 
State Securities Commission (SSC) in the middle of February 
with the PM noting the need to ease the burden on banks 
supplying long-term capital to the economy. End Note.) 
 
7.  (U) According to Hung, so far, most investors on the STC 
are individual investors, with a small minority of 
institutional investors, venture capitalists, and insurance 
companies.  (Note: According to a recent Asian Development 
Bank report, individual investors number 15,000 of the STC's 
participants, whereas a mere 130 institutional investors are 
active. The report notes that over 100,000 shares trade 
daily on 1,500 executed orders.  End note.) 
 
8.  (U) Hung added that the GVN's long-term ten year plan 
includes the opening of a Hanoi Trading Center by the end of 
2004, followed thereafter by an over-the-counter (OTC) 
exchange to handle small and medium-sized enterprise 
listings.  As capital markets expand in Vietnam, Hung 
recognizes that greater demands for training, capacity- 
building, and technical expertise transfer will also arise. 
 
9.  (U) Hung described how Vietnamese savers are slowly 
shifting from investment vehicles such as metals, jewelry, 
land, and foreign exchange into stocks, bonds, and savings 
accounts.  Hung attributed the transformation to the low, 
inflation rates of the last ten years.  Hung also noted that 
he believes that Vietnamese real estate is near a valuation 
peak, which he called a "bubble," and that this may 
consequently drive increased shifts into equity and debt 
investments.  Hung believes that targeted tax policy 
planning, especially on capital gains, may assist with 
stemming real estate speculation since there is currently no 
capital gains tax on capital market investments. 
 
10.  (U) Comment:  While the GVN's recognition of the need 
for further privatization is encouraging, the decision to 
eliminate the independence of the SSC by placing it under 
the rather conservative Ministry of Finance is not.  End 
Comment. 
BURGHARDT