[Vnbiz] FW: Vietnam SEC plans to ask government to pump in moneytosave the stock market

Sun Jan 20 18:37:02 PST 2008

Dear anh Hoanh:

(1) money from the government may not help the situation at all, because the
problems are so massive; they are across-the-board phenomena; money won't be
able to stop the slide and improve confidence, 

I don't think that the money is from Gov budget. State Bank and commercial
banks change USD to VND and vice versa and still keep the same M2 in the
market and do not generate new VND notes if State Bank sells or buys back
Treasury Bonds, increases or decreases Compulsory Reserve . and other tools.
State Bank is now doing appropriate actions i.e: selling TBs and increasing
Reserve. State Bank is considering removing 3% limit of securities loan of
commercial banks because the No.03 Decision limits the ability of commercial
banks in their lending activities.      

(2) confidence has been lost and can only be rebuilt by demonstrating the
efficiency in the system, and not otherwise, and 

The confidence can also be gained again by the manner the Gov shows that he
is aware of what is happening and knows how to correct and knows how to
improve situation. The Gov did some solutions recently. Impacts of the
solutions can not be seen immediately but it appears that the Gov
understands that if any market failure occurs the Gov's interest is lost in
next IPOs. 

(3) adding in the money may just prolong the mentality that "We can mess up
all we can, the government is always there to help." I think that "mess up"
is not a very relevant word in this circumstance. I don't think that making
up the market hot is the problem of investors or they may be victims. SSC
and MoF are the governing bodies to control the "cold" and the "hot" of the
market by appropriate actions at appropriate time to make sure that the
securities market is traded in fair and transparent environtment. These are
their job. Listed companies are onother players in the market. Yes, they may
apply some bad practices from somewhere but the SSC is the one who approves
massive share issues of listed companies and is the one who supervises any
inside trading, asymmetric information, free riding . If the market is
controlled well, can the businesses do it easily? That may be the management
capacity of the SSC that needs to be improved. The Gov is not "always there
to help", the Gov is correcting.   

Again, I would say that this is not a real pouring money in. That's totally
different to subprime mortgage crisis happned in the US and that led to
surviving actions of US Treasury and other players to save ML and Citigroup
. 

Each person has different views in an issue. I am not intending to change
your mind, anh Hoanh. Just something to discuss and share. 

Have a great weekend.

Dan

Subject: 

Re: [Vnbiz] Vietnam SEC plans to ask government to pump in moneytosave the
stock market

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[ Vietnam Business Forum ]

Dear anh Dan & CACC,

Good point, anh Dan.  I do know that sometimes government has to jump in to
save a national economic failure and the confidence of investors is
necessary for the market to survive.  But in this case, I do think that (1)
money from the government may not help the situation at all, because the
problems are so massive; they are across-the-board phenomena; money won't be
able to stop the slide and improve confidence, (2) confidence has been lost
and can only be rebuilt by demonstrating the efficiency in the system, and
not otherwise, and (3) adding in the money may just prolong the mentality
that "We can mess up all we can, the government is always there to help."
The baby just has to learn how to walk.  Instead of putting in money,
probably it is better to question the competency of Vietnam's SEC. 

However, I am not really deadset against pumping in money.  I may change my
mind if you have persuasive rationale, anh Dan. So I am all ears for your
next messages  :-)

Great day, brother.

Hoanh

On Apr 18, 2007 11:03 PM, Bui Trong Dan <dan.trong at gmail.com> wrote:

[ Vietnam Business Forum ]

Dear anh Hoanh,

I totally agree with your two recommendations you posted. However, if we see
this issue in different angles such as: impacts to the economy and society,
capital mobilization capacity of listed companies, and IPOs of big SOEs,
belief of investors in the market. 

Of course, if the securities market collapses, investors bear the losses,
other markets seem unstable accordingly. Actually, to date, many investors
who were interviewed in the TV have reported that they were making loss 30%
to 45% just in few months. There is remarkable portion of investors who are
retired persons. They are making voice. This could raise a social issue. 

2007 has been seen a huge amount of 90.000 billion VND mobilized via IPOs of
SOEs and increase capital of listed companies. Some reports of HSBC and ML
say that this is a problem of dilution of capitalization. On the other hand,
if the market was not "hot" in last year, companies could not be able to
mobilize money for business development. 

According to Government plan, there will be many SOEs to be equitized
through IPO in period 2008 - 2010. It is obvious that the Government take a
lot of "Capital Surplus" through the IPOs. Just an example, the Government
receive more than 10.000 billion if the VCB IPO of 6.5% capital success.
This amount can be higher if IPO price of VCB more than 107.000 VND per
share against pair value of 10.000 VND. The next IPOs will be Sabeco,
Habeco, BIDV, ICB, VietnamAirlines, Mobile and Vinaphone . If the market
collapses now one anticipates that there is a failure of next IPOs. 

Belief of investors is the most important thing. If investors can not keep
their belief to supports and management of Gov and to transparency of market
makers they quit without any promise of coming back. And if there is no or
few buyers and sellers then this can not shape a market. 

In the next section, I will discuss about the way the Gov will "pump the
money in". Actually, this is not an action of pumping/pouring/opening tap
money in. This is only the correction of something wrong happened in 2007. 

In mid 2007, State Bank regulated a Direction No.03. In the direction, the
State Bank limited commercial banks to 3% of bank loans for securities (or
securities is secured assets) of total bank loan balance as at 31/12/2007.
Immediately, commercial banks stopped this kind of lending and there is no
money supply to securities investors from bank. Both commercial banks and
investors believe that this Direction is a violation to bank business
operations by administration decision. Commercial banks think that they can
manage risks themselves and they can book doubtful debt provision to
securities loan at suitable rates.      

Another matter that in 2007 the State Bank bough 7b USD and increased M2
something more than 100.000 b VND. As a matter of fact, more money in the
circulation and with other reasons, 2007 inflation is two digits.
Consequently, the State Bank stopped buying USD from commercial banks so
that commercial banks can not sell USD to foreign portfolio investors. If
the foreign investors can not convert their USD to VND they can not trade in
the market. Foreign portfolio investment plays a very important role in the
local securities market. In 15/1/08, the State Bank bough 30m USD and the
number increased in the next days, therefore, more VND in the circulation.
(Yesterday, State Bank announced that they imposed 1% more in compulsory
reserve to commercial banks) 

By these two actions, they Gov is saving the market and correcting the ways
Gov's governing a market economy. 

Few food for thought. 

Have a nice day!

Dan           

 -- 
Tran Dinh Hoanh, Esq., LLB, JD
Washington DC 

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