[Vnbiz] FW: Re: Vietnam SEC plans to ask government to pump inmoney tosave the stock market

Sun Jan 20 18:37:28 PST 2008

Dear anh Phong,

Foreign portfolio investment in the local securities market can only be in
local currency, the VND. When a foreign investor would like to invest in
either HCMC Stock Exchange or Hanoi Trading Center, s/he has to open an
account with a securities firm and get a trading code. The money the
investor brings in has to be conveted to VND through a commercial bank.
Given that, commercial banks buy foreign currencies from investors and sell
them VND. Please note that, State Bank do not sell foreign currencies to
foreign investors directly but thorough commercial banks. In normal trading
system, commercial banks buy the foreign currencies any sell them to 1)
importers, 2) other banks via interbank system, 3) State Bank the last
choice. The amount of foreign currencies commercial banks bought more than
importers' demand, then commercial banks have to sell foreign currencies to
other local commercial banks. But other banks also have foreign currencies
surplus because they buy foreign currencies from investors as well. The last
resort the commercial banks can do is to sell the surplus foreign currencies
to State Bank. But in 2007, State Bank already bought 7b USD and pump about
110b to the circulation, inflation accelarated accordingly. As a fear of an
imminent 2-digits inflation, State Bank stopped buying foreign currencies
from commercial banks. As it did, commercial banks stopped buying foerign
currencies from investors. A tool that State Bank limits commercial bank
buying surplus foreign currencies is "forex position" to secure the balance
between local currency and foreign currencies a commercial bank holds at a
suitable proportion. 

The convertibility of USD to VND is a problem. Recently, the State Bank
loosened the fluctuation allowance of foreign currencies trading by incease
to 0.75% from 0.5% rate. Therefore the rate is more flexible and commercial
banks can trade at wider range from daily announced (by State Bank) exchange
rate in the interbank market and to State Bank. And this results in a
decrease of VND/USD rate. 

>From 15/1, State Bank resumed buying USD from commercial banks. 

Regards,

Dan

Subject: 

Re: [Vnbiz] Vietnam SEC plans to ask government to pump inmoney tosave the
stock market

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[ Vietnam Business Forum ]

Dear anh Dan: 
Thanks for the interesting analysis. 
Not being a finance expert, I am learning new things from you. 
The financial press in Vietnam is also something new, hence the over
simplification that leads to statement such as "pump in money to save the
stock market".  I suspect the level of financial sophistication among
investors as well as decision makers in the Party is also quite low.  Hence,
it is important that policy makers have a good team of competent and
independent advisors to help them make difficult choices. 
I agree with anh Hoanh's first point, but feel the second point needs
refinement.  Of course transparency and good corporate governance and
regulations are all important to a healthy financial market, but a total
swim or sink approach is not entirely workable.  I observe that even here in
the capitalist epicenter of the World, government leaders employ monetary
tools to calibrate the economy to avoid overheating/hyperinflation or to
soften recessions.  Political candidates are talking about an economic
stimulus package to offset the worse of the looming subprime mortgage crisis
that's taking the stock market into bear territory, and the economy into
recession. 
I would like to ask anh Dan for additional clarification on your statement
that "State Bank stopped buying USD from commercial banks so that commercial
banks can not sell USD to foreign portfolio investors".  How does this stop
investors from converting USD into VND?  Is VND convertibility into USD a
problem? 
Best,  HPP 

"Bui Trong Dan" <dan.trong at gmail.com> 
Sent by: vnbiz-bounces at mail.saigon.com 

04/19/2007 12:03 AM 

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Subject

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

[ 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           

  _____  

From: vnbiz-bounces at mail.saigon.com [mailto:vnbiz-bounces at mail.saigon.com]
On Behalf Of Tran Dinh Hoanh
Sent: Wednesday, January 16, 2008 2:17 AM
To: vnbiz at vietlinks.net
Subject: [Vnbiz] Vietnam SEC plans to ask government to pump in money tosave
the stock market 

Dear CACC, 

www.VNexpress.com today has a new article that Vietnam's Securities and
Exchange Commission (Uy Ban Chung Khoan) is asking the government to, among
other things,  pump more money into the market to save the stock market.   

I am not sure how to pump what money into what and where, but it looks like
this may not be a good idea.  The Vietnam stock market has been running
extremely hot due to many unethical trading practices (inside trading), hot
fad (many people went into stock investment because they thought they could
make money fast), investor had no clue about stock value of a company and
simply bought any stocks from any company (including brand-new companies
with zero track record), abuse of the stock market (i heard oral reports
that some unethical folks would open a series of brandnew companies to sell
stock on the market but didn't care if the companies would do any business
or would survive a month.  They just wanted to sell their stocks, got the
money and kinda disappeared).   

For several years, when everyone was so hot on stock, I kept telling people
that the stock market wouldn't last long, the whole thing would collapse
(please check my old messages on this forum), because I knew all the stupid
games people played.  Now, of course the market is collapsing.  Why should
the government want to pump any money into the market, wasting money to save
unethical and dumb conducts.  I recommend that the government does only 2
things: (1)  Tightening its supervision on the market, i.e., enforcing rules
on inside trading, tightening regulations on how a company can sell its
stock to the public--track records and public disclosure of financial
information, vigorously prosecuting frauds and illegal manipulations of the
market, and (2) let the market drops, survives and recuperates by itself.
The market and investors just have to learn how to be smart,m clean and
productive. 

Have a great day! 

Hoanh 

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