Over $6b of FII poured into stock market in past 10yrs

“Over $6 billion of foreign indirect investment (FII) capital via the stock market remains limited compared with the already-attracted FDI capital of $124 billion during the past 10 years. Bur regarding the medium and long terms, the stock market will be an important capital attraction channel for the economy with an annual strong growth”, Nguyen Doan Hung, vice president of State Securities Commission (SSC) said this at the ” Foreign investment in Vietnam during the post-crisis period” conference held in Hanoi on May 21.

The spokesmen at the conference also showed the fully-optimistic point of view on the FII flow. Even, Hung predicted that the FII flow is gradually replacing FDI source.

He frankly shared his proposals how to make FII flow become more attractive.

FII is an important finance source contributing to promote the economic development and create a stronger demand power and boost equitisation process of state companies as well as bond issue activity. However, the biggest effectiveness of FII is to help increase the liquidity for the stock market, set up a new investment culture for local investors who are a little experienced, he added.

In order to attract more FII, Vietnamese firms should produce high quality commodities (stocks) while the government needs to consider the factors preventing the participation of foreign investors such as rules on limiting foreign ownership room at 49 percent, trading band of 5 percent and 7 percent at HNX and STC correspondingly. Furthermore, Vietnam should release the effective policies to encourage long term investment funds here.

Factually, in Vietnamese stock market, there is almost no long term investment fund. The country should have a mechanism of promoting the cooperative investment models; investment linked insurance products, retirement insurance, developing professional investment organisations with firm finance foundation and high capacity in risk administration to upgrade the country’s economic defense strength before the upheavals of global market and foreigners’ sudden capital withdrawal.

When the market has a lot of good stocks with higher liquidity, these funds will be attracted.

As being asked about negative affects of FII to the economy, Hung replied that FII could cause upheavals in not only finance and banking sector but also the nation’s economy, or even the whole region. The risks come from the flexibility of FII in the international capital flows. The FII flow is up or down very drastically so as the crisis happens, the moving of FII will impact strongly to Vietnam’s stock market and the nation’s foreign currency reserve and forex rate.

He proposed that Vietnam should both attract FII in the international economic integration context along with have preventative solutions to confront the non-stop movements and minimise the hidden risks of FII source. At this time, FII is tending to turn back the Asia region, especially south-eastern Asia. So we [Vietnam] need to release the measures to boost the sustainable development of stock market, such as stricter supervision over business operations of credit institutions.

Now State Securities Commission (SSC) is one of three agencies (together with Ministry of Planning and Investment -MPI and State Bank of Vietnam-SBV) in charge of watching the investment capital flow on the domestic stock market.

With about 130,000 accounts of foreign investors (accounting for 1.5 percent of local investors’), over 1,200 are of foreign institutions and funds but their trading volume occupies up to 20-25 percent [equivalent with $6 billion] of total securities portfolio value at this time.

The scope of centralised stock market has been expanded with total market capitalisation of up to 40 percent of 2009 GDP. Total numbers of listed funds and shares rose from two in 2000 to 517 at present. Also, 573 kinds of bonds are being listed on both bourses. Reportedly, total capital raised via the stock market reached nearly 200 trillion dong, representing a consecutive increase annually to 127 trillion dong in 2007, equalling to 11.69 percent of total raised capital amount of the whole economy.

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Posted by VBN on May 25 2010. Filed under Stock. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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