VIETNAM: ‘Casino Trading’ Heats Up Fledgling Bourse

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Tran Dinh Thanh Lam

HO CHI MINH CITY, May 14 2006 (IPS) - These days, Nguyen Thi Tuyet Loc, a college student, leaves home early so that she can indulge in a supremely capitalist activity – speculating in the stock market.

With amateur investors thronging the booming HCMC bourse (HSTC), Loc needs to hurry up so she can get a decent chance to buy some hot stocks. “You can’t get a chance at the first trading session, but putting in orders (in the first session) may give you priority in the second one,” Loc said.

Each day, there are two trading sessions operating at the bourse, the first session at 9 am followed by the second, an hour later. Besides HSTC, a dozen other trading floors are also open, attracting hundreds of investors who buy on a first-come-first-served basis.

“The increasing number of investors has surpassed our expectations,” said Nguyen Hong Nam, managing director of Saigon Stock Incorporation, one of the city’s securities trading floors. Nam plans to add more air-conditioners to cool down the atmosphere, hot in more ways than one.

According to HSTC officials, when the bourse became operational in July 2000, there were listed shares were worth a total of 270 billion VND (17.3 million US dollars). And from a market capitalisation of 144 million dollars for 22 listed companies two years ago, it has increased more than tenfold, to 1.5 billion dollars for 36 companies.

Since the beginning of the year, the trading has picked up a gallop with the Vietnam Stock Index (VSI) moving up by 60 percent.

Initially, investors feared that only loss-making state enterprises, that the government wanted to get rid of, would be put up for sale. But now, the stocks of profitable giants like VinaMilk, the national dairy producer, are traded in a trend indicating that this communist bastion is moving firmly towards the privatisation of its dominant public sector.

This has lured people from all walks of life, even housewives and retired officials to get into stock trading. Loc, who is majoring in Vietnamese Literature, knows nothing about stocks. But when she saw her friends at HCMC College of Economics making money ”playing stocks”, she decided to join. In two months, she earned 32 million VND (2000 US dollars).

“My friends too, are winning. Although we could not get the famous REE or VNM (stocks issued by HCMC’s Refrigeration and Engineering, and VinaMilk), the price of stocks we hold have also risen,” Loc said happily.

Blue chip stocks like VNM, REE, NKD, KDC increase rapidly in value. REE has increased by 160 percent in three months and VNM by 76.4 percent. Any investor possessing these blue chips could be certain to have made a killing.

Mounting prices have, in turn, increased the number of investors. At the Asia Commercial Bank Security Company (ACBS) the number of new accounts has increased significantly. From 60 accounts in January 2006, the number became 400 in April. To date, there are more 4,200 investors at ACBS (each investor can open only one account).

The majority of investors are amateurs and, like Loc, play the stock market for no better reason than that ”other people are winning and making money”.

“Most investors just follow the movement; they don’t know the financial situation of the companies they put their money into. Even the prices of stocks issued by losing companies – BBT, DPC, and BTC – have increased in the last few months, a clear indication that most investors are not knowledgeable,” said Nguyen Quang Vinh , general manager of Bao Viet Stock Company.

Last year, when he opened Vietnam’s second stock market in Hanoi, deputy Prime Minister Nguyen Tan Dung said: “Vietnam is determined to build a market economy based on a strong bourse”. Dung said a strong, sustainable market economy cannot exist without a strong stock market; and a developing stock market is a channel to mobilise long-term capital for the economy.

To reach this target, Dung instructed the finance ministry to create an institutional framework to ensure transparent and effective operation of the stock market.

Dung added that foreigners would be allowed to hold 49 percent of public companies, and that government would privatise 100-200 new enterprises to add listed stocks to the existing offerings. Banking giant Vietcombank and some of the state telecom companies were also expected to go public.

Vietcombank and Sacombank prefer to have stocks transacted over the counter, where prices are also rocketing. Some days after Bill Gates’ visit to Vietnam and Microsoft’s signing a memorandum of understanding with FPT, a leading Vietnamese IT company, the price of FPT stocks sold over the counter rose 14 times.

Tran Van Huy, who speculates in blue chips stocks, said that with so many amateurs joining, the bourse has become unmanageable. “They don’t care about transparency and credibility. All they need is to make quick money. Their careless way of investing has prompted some loss-making state-run companies to get auditing firms to draw up sound-looking reports.”

Amateur investors like Loc content themselves with stocks issued by small companies with dubious potential. But their enthusiasm has resulted in rocketing prices for all the offerings.

“The bourse is too hot. It’s becoming a game of chance,” Vinh said.

Nguyen Hoang Hai, secretary general of the Vietnam Association of Financial Investors said he finds it difficult to make any accurate forecasts.

Don Lam, who runs VinaCapital in Ho Chi Minh City, the largest fund through which foreigners can invest in Vietnamese stocks, the 300 million US dollar “Vietnam Opportunity Fund”, traded on the London Stock Exchange – echoed the same helplessness.

An even more alarming trend is speculators using shares as collateral to pick up bank loans and recycle the money back into stocks, threatening to create a bubble.

Since the end of March, 13 million shares worth an estimated 50 million dollars were used as collateral against loans as commercial banks pumped money into what has, albeit artificially, become Asia’s hottest stock market.

The State Securities Commission had to step in and ask the central bank to tighten loans given against stocks to cool down the market and to protect commercial banks against bad debts in a white-hot market.

Over the weekend, the Vietnam Stock Index fell by over seven points with speculators finally offloading shares rather than buying mindlessly, in a situation that resembles a casino rather than a bourse.