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THE VIETNAMESE STOCK MARKET By Roberta S. Karmel Thirty years ago, I never imagined I would be visiting Vietnam and be warmly welcomed as an American, witnessing a nation enjoying economic growth and increasing prosperity, despite some of the lingering ill effects of Agent Orange in the countryside. Yet, last month, as part of a delegation from the Financial Women’s Association, I had the good fortunate to travel to Vietnam and meet with government officials and others and learn about business developments and Vietnam’s booming stock market. i[i] It is noteworthy that the United States is Vietnam’s top trading partner, and its second biggest investor after Taiwan. Vietnam’s GDP is rising dramatically, its foreign direct investment is rapidly increasing, and its stock market is soaring. On November 7, 2006, Vietnam was officially recognized by the international community as the 150th WTO member. Vietnam is Asia’s second fastest growing economy after China, and it has been forecast that Vietnam will become the world’s 17th largest economy by 2025. Although the country has been a oneparty communist state since 1976, Vietnam has eased restrictions on private enterprise and is selling off many state owned enterprises (“SOEs”) to the public. These offerings are not referred to as “privatizations” for ideological reasons, but rather are called “equitizations.” In 1986, Vietnam launched the Doi Moi (or Renovation) intended to transition the country from a centralized economy to a socialist-oriented market economy. These reforms have borne fruit. In 2006, Vietnam’s stock market index surged 145% and in the first three months of 2007, the index rose another 60%. It should be understood that the Vietnamese stock

market started from a very low base of 22 listed companies two years ago with a market capitalization of $144 million. Confronted by such a hot stock market, the government authorities are trying to cool the market without discouraging foreign investment, but one of the reasons for the market’s momentum is that the government’s sale of SOEs is proceeding very slowly and there are serious limits on the percentages of nongovernmental investors in these SOEs once they are equitized. Vietnam’s securities markets are supervised and essentially managed by the State Securities Commission which is part of the Ministry of Finance. A Law on Securities (23/08/2006) was adopted in June of 2006 to facilitate the development of the securities market speedily and sustainably. The law covers the regulation of listing and trading securities; the State’s role in administering and inspecting the securities market; the public offer of securities; the disclosure and corporate governance of public companies; the organization of trading markets; depository, clearance and payment facilities; investment management and fund companies; information disclosure; inspections and dispute resolution. The extent to which this law and its administration will be adequate will probably be tested by the stock market’s resiliency in the event of a serious market break or scandal. Since the adoption of the Law on Securities, Vietnam has experienced only a bull market. Indeed, both the proverbial bull and bear statues in front of the Ho Chi Minh Stock Exchange look remarkably tame, and the bear resembles a teddy bear more than a fierce and dangerous animal. The State Capital Investment Corporation represents the State as an investor where the state retains a majority interest in SOEs sold on the public securities markets. This organization is modeled after Temasek Holdings, the investment arm of the

Singapore government, which is one hundred per cent owned by the Ministry of Finance of Singapore. The State Capital Investment Corporation is working with the World Bank, the IMF and similar organizations to devise a corporate governance model for Vietnam. Similarly, a major international accounting firm is assisting Vietnamese companies to adjust to...
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