Vietnam's Bulls And Bears

Government Fears Free-Market Volatility

(AP)  Thousands of eager investors packed a handful of brokerages in July when communist Vietnam threw open the doors of its first-ever stock exchange.

Four months later, it remains more a tentative foray than a decisive plunge into capitalism. Only four companies have listed, trade volume is anemic, and brokerages are bleeding money. There has been more frustration than profit.

Vietnam has been praised for following in the footsteps of its communist neighbor, China, in launching the exchange, but the initial euphoria has been tempered. The slow start underscores the government's lingering wariness of relinquishing full control to free-market forces and the lack of commodities for sale.

The government probably also remembers that when the Chinese opened their first stock market in 1993, they ran out of application forms for shares and thousands of frustrated buyers rioted. And it closely watched the role speculative money played in Asia's 1997 economic meltdown.

Leery of the volatility of market-driven prices, and anxious to curb speculators, the government has maintained tight reins; day trading is prohibited and stocks can only trade within a 2 percent band of the previous day's close.

Tran Dac Sinh, deputy director of the Ho Chi Minh City Securities Trading Center, defends the controls.

Complete Coverage

Return To Vietnam
The President's Visit
The latest details of President Clinton's trip to Vietnam.
Now And Then
The Vietnam War is a distant memory for the Vietnamese, more than half of whom have been born since it ended.
Two Faces of Vietnam
The influence of the West lives side-by-side with ancient customs in many areas.
Stocks And Bounds
The country's new stock market is hobbled by limits the government, leery of free-market principles, is imposing on it.

Capping Motorbike Deaths
The number of fatalities from motorbike accidents is so serious that one of President Clinton's priorities is putting helmets on drivers.

"Because public investors don't have enough knowledge about the market, we want to control it in the beginning. As investors understand more, we'll widen the trading band," Sinh said.

Some agree with the government's careful approach, poiting out that Vietnam is committed to major economic reforms, including a historic bilateral trade agreement with the United States - still subject to legislative approval - that will open protected markets to competition.

Vietnam's economy has begun a slow recovery, following two years of lackluster growth after the Asian financial crisis.

Gross Domestic Product has increased to 6.7 percent this year from 4.8 percent last year, new government figures show. Exports hit a record $14 billion, up 21.3 percent from 1999. Also, 1.3 million new jobs have been created this year, and urban unemployment has dropped slightly to 6.5 percent this year, from 7.2 percent last year.

With President Clinton visiting this weekend, the draw of Vietnam as a place to invest will only increase, supporters say.

"The market's very small, but they have predicted it will be that way for a while," said financier Rick Mayo-Smith, whose merchant bank, Indochina Capital Corp., set up a $10 million fund to invest in listed companies.

"More importantly to me, it's helped change the mood. The impression of international investors before was that 'Vietnam is too small for us right now.' Now, with the stock market up and the bilateral trade agreement signed, it's one of 'We're taking a second look,' " he said.

Still, Sinh acknowledges the growing pains.

The number of tradable shares is so small that all six licensed securities firms are reporting severe losses. Over the first three months, their revenue totaled only $37,400, according to Vietnam News, the official English-language daily. Reports abound of brokerages in the red; companies complain that operating costs equal $28,000 to $36,000 a month per brokerage.

The most successful, Asian Bank Securities Co., took in just over $3,000 per month while its competitors logged a total of $690.

Sinh promises two or three more companies will join the exchange this year.

The bigger issue is the government's failure so far to lure larger, more successful and newly privatized state-owned enterprises into listing, said Johan Nyvene, who is in charge of foreign investor accounts for Hongkong & Shanghai Banking Corp.

"In order to kick-start enthusiasm, the government has to take steps toward equitizing more attractive companies. But Vietnam is very cautious. The oil and telecom companies won't be equitized anytime soon," he said.

The 2 percent trading band has kept prices so low that few shareholders want to sell. Buyers still outnumber sellers, but many investors, frustrated with the price cap, are dropping out, securities firms say.

Sinh said the government is considering selling off more of its stake in the companies and will expand the trading band to 5 percent soon.

Government rules for foreign investors remain fuzzy, Nyvene said, but he predicts foreign investment will pick up over the next six to 12 months, esecially from individuals in Asia.