Vietnam is now witnessing more dollar millionaires than ever thanks to the stock market. Should we cash the money in?
I usually make calls to Vietnam every weekend to monitor the economic status. This time I was surprised to find out that many friends of mine are becoming millionaires thanks to the stock market.
One of them said "It"s a frenzy! Put your money in!' I do want to be rich but the question is why should I bother with the stock market in my country.
Stock Market is No More an Economic Experiment
A couple of years ago, Vietnamese people hesitated to trade in the stock market since there were few listed companies and little access to companies' financial performance. They would rather deposit their money in the banks to earn greater profits than invest in stocks. As part of our culture, we prefer savings and dread taking risks.
Things have changed. A recent report of AFP shows that Vietnam's main stock exchange, the 7 year -old HCMC Securities Trading Centre has made a stunning growth from around $300m in early 2006 to a volume of over $16b now.
Data from the VnExpress, the largest readership online newspaper in Vietnam, show that the benchmark VnIndex rose nearly 145 percent in last year and so far has gained over 47 percent.
Saigon Securities Inc., the country's largest brokerage estimates that at least 500,000 Vietnamese are now participating in the stock market and the number is increasing.
AFP's reporter earlier this year described the trading floor in the largest city in Vietnam, Ho Chi Minh City, the place is filled with people ranging from absentee office workers, students to housewives who all struggle for space in the brokerage centre with professional traders.
Reasons Behind The Stock Fever
Last year, Vietnam attained the robust growth rate of 8.4%, only after China, according to People, the Vietnam's Communist Party's biggest newspaper. The Asia Development Bank has recently reported Vietnam's GDP growth of 2007 even surpassed Singapore's (7.5%).
Reforms have been made in public companies allowing foreigners to hold 49% stakes as more state-owned companies are pushed to go public, asserts People.
Vietnam has recently joined the World Trade Organization. On a macro-level, these are the main factors fuelling the stock market boom, says Fortune Magazine.
Other reasons stay in the market itself. Kay Johnson, Time Magazine, wrote that grey market is now dominating the current bourses in Vietnam. Until recently, unlisted companies were under no obligation to disclose financial information, investors then had to find other ways to gauge company performance or whether an investment was sound. Vnexpress in many of their articles said investing in stocks mainly relied on speculation and gut feelings.
Newspapers in Vietnam now even joke a vegetable street vendor might earn more money than an economics professor since her analysis is more simple. She goes with the crowd. Investors are willing to pay lavishly for real-time market information.
Time Magazine in a report in February says Vietnam's market has no licensed brokers as back then there was few regulatory oversight. The author of that report wrote "the madness of crowds is alive and well".
Boom and bust?
As more people are cashing in the heating economy, the Economist warns that a possible "bubble burst" might take place like in other Asian countries several years ago.
Economic experts in Vietnam speculates that the stock market's current situation will cool down in the next two years. Indeed, since its peak in March of 1,175 points, the rest of 2007 saw a steep decline of the Vietnam's main stock, VNIndex. The index has slid 21.6 per cent since then.
So far, there has been 179 companies issuing 2.5 billion new shares, with a trading value of $3bn this year, a 25 times the value of last year's new issues. Analysts worry the mounting number of shares in a small market will drag the entire market down. Recently, Vietcombank, the biggest state bank in Vietnam which handles the majority of the country's trade payment, sold 97.5 million shares, 6.5 per cent of the bank, raising $625m in IPO. The worry is yet to stop as many fear the bank's shares will have to face the real test of the Vietnam's volatile market.
Should we invest?
VnExpress, says Hanoi, has backed off plans to impose capital controls and fines for spreading false information and insider trading.
Many investors still trade their cash in stock exchange as the success of the country's GDP growth is still imminent. As inflation is rising high in the country, another factor should be taken notice if anyone wants to join the market.
For me, go home and become a broker? I reckon I need more homework and wait until my pocket is big enough.
