Vietnam has undergone a steady change in its economic mix. Private, individual and FDI investment portions of GDP are increasing and the State economy portion continues to decline.
With the introduction of the Enterprise Law which created an equal playing field for all entities, the private sector in Vietnam has been growing remarkably. From less than 100 private companies in 2000, there are now more than 200,000 and the number continues to expand.
On the other hand, Vietnam has been actively restructuring State-owned enterprises (SOEs) and has brought down the number of SOEs from 14,000 in 1990 to around 2,000-4,000 currently.
Over-the-Counter Market (OTC)
The OTC market is an active equity market in Vietnam. A company enters the OTC market once it becomes a public company, and generally leaves the OTC market when it gets listed on either HoSE or HaSTC.
It is estimated that there are over 3,000 companies on the OTC platform, with a total market capitalization amounting to three to four times that of the listed market. Of these 3,000 stocks, VAM believes approximately 1,000 have been actively traded in the past 12 months.
The OTC market is not an inferior market for second-grade companies to achieve liquidity. In fact, some of Vietnam’s biggest companies like Vietcombank, Bao Viet Insurance, and Saigon Brewery trade on the OTC market. Rather, it is generally used as a transitional platform for private sector companies whilst such companies are preparing to list on HoSE or HaSTC. Generally, companies will restructure their business and financials, establish Boards of Directors and Audit Committees, improve corporate governance, and create a channel for communicating with shareholders, etc. whilst on the OTC in anticipation of listing.
In practice, most privatized companies trade in the OTC market for a period of 6 to 18 months before being listed on HoSE or HaSTC, although in bear markets the period may be prolonged. The banking sector provides a good example of the relationship between the OTC market and the two exchanges.
Companies in the OTC market are all public unlisted companies and are governed by the SSC and the Ministry of Planning and Investment of Vietnam. The Law on Securities of Vietnam and Corporate Law of Vietnam apply.
Listed Market
In 1996, the Government established the SSC to regulate the development, organization and operations of national stock exchanges, and the healthy development of the securities market.
There are two stock market trading platforms in Vietnam. The Ho Chi Minh City Securities Trading Center was set up in July 2000 with two stocks and a market capitalization of US$31.5 million and then upgraded to the Ho Chi Minh Stock Exchange (HoSE) in August 2007 The Hanoi Stock Trading Centre ( HaSTC) was opened in March 2005 with a focus on smaller companies. The Vietnam Index (VNI) is a simple capitalization-weighted index comprising the issued shares of all the listed companies on HoSE, and was introduced at the end of the first day’s trading (July 2000) with a base of 100.
Although relatively small by regional standards, stock market capitalization has increased rapidly recently, due largely to new listings prompted by government initiatives. Market capitalisation increased 30 times from end-2005 to end-2007. The Government has taken various steps to raise the foreign ownership limit and since October 2005, foreigners are allowed to own up to 49% of a non-bank listed stock. The ceiling for ownership of foreigners in banks is 30%. In addition, a single foreign investor is only allowed to hold a maximum of 10% of the issued capital of a bank, with some exceptions. No domestic investment fund may hold more than 15% of any listed companies, and no domestic investment fund may invest more than 20% of total fund value in a particular company. The Government has announced that it plans to further relax constraints on foreign ownership in certain sectors as the Vietnam securities market matures. It is estimated that foreign investors currently own about 20% - 35% of the shares listed in the stock market.
As at September 2008, there were about 311 stocks listed on HoSE and HaSTC with an aggregate market capitalization of approximately US$15-20 billion, up from 41 companies listed with the market capitalization of US$720 million in July 2005. The HaSTC serves mainly as a vehicle for auctioning equitized SOEs and government bonds in unlisted shares.
The first law on securities was approved and effective from 1 January 2007. The law is intended to enhance the legal framework and remove factors which are believed to be hindrance to the development of the Vietnamese stock markets.
