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Cablegate: Recent Developments in Vietnam's Stock Market

This record is a partial extract of the original cable. The full text of the original cable is not available.



E.O. 12958: N/A

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).

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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

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