What Benefits from VN-30 Index?

The Hochiminh Stock Exchange (HOSE) recently hosted a seminar to introduce the VN-30 Index to market members. Will this index resolve shortcomings of the current VN-Index?
Mr Hoang Thach Lan, Brokerage Manager at MHB Securities Corporation (MHBS), said: From the angle of an individual investor, when HOSE gave reasons for the formation of the VN-30 Index, only the reason that aimed to resolve shortcomings of the current VN-Index was persuasive while others are too generic and impractical.
The VN-30 Index was introduced to eliminate the “distortion” of the current VN-Index caused by some stocks with large market caps (commonly called as the quartet: BVH, VIC, VNM and MSN). These stocks outweigh the rest in market capitalisation. By adjusting the market capitalisation to the free-float shares and reducing the weight of these stocks to a moderate limit (10 percent of the total market cap), the VN -30 Index can solve this problem.
The so-called quartet will be adjusted in the following sequences: First, the market capitalisation (market price is multiplied by outstanding shares) is multiplied by the free-float coefficient (excluding rarely traded shares held by the State and strategic shareholders, and restricted shares held by members of the board of directors); next, excluding stocks with free-float coefficient (the number of shares freely traded on the market over the total number of outstanding shares) of less than 5 percent; then pick out 30 stocks and adjust their weights in the basket.
However, according to Mr Lan, this is not the main objective because if there is only the need to adjust the weights of capitalisation, it is not necessary to reduce the basket size from more than 300 stocks to only 30. He explained that HOSE, with its sufficient data and technology, can easily adjust the VN-Index. If the Stock Exchange creates the VN-30 Index, will it redefine the VN-Index? Investors still refer to the adjusted VN-Index and they do need to find out a new index. So, what is the main objective of the VN-30 Index?
According to HOSE, the VN-30 Index will help enhance HOSE’s provision of services. However, some investors said it will also help improve the service provision of HOSE’s members. Services thereof include providing information for securities companies, fund management companies and other institutions to create portfolios/index-tracking funds (e.g. ETF) and then exchange-traded funds (A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold.)
In addition, on many stock markets, investors track indexes to create a portfolio with net asset value (NAV) changing in relation to the index instead of analysing listed companies to find out good picks. Index analysis means analysing macroeconomic data and technical graphs rather than look into financial reports and the research impossibly fully reflects the status of target companies and serves as the basis for due diligence reports on such companies.
Today, instead of setting up portfolios, securities companies, securities investment companies, fund management companies and other related entities provide and manage these portfolios for customers who are investors. Without doubt, market insiders all know an ETF called the Market Vectors Vietnam (VNM) ETF managed by Van Eck Global, which tracks the VN-Index. In addition, securities companies like Saigon Securities Inc (SSI) or investment funds like Dragon Capital (DC) also created their own indices for this purpose. However, the biggest obstacle to VN-Index trackers is the inability of calculating the exact number of free-float shares on the market. In theory, the “distortion” of the VN-Index can be resolved by continuous buying and selling of stocks in ETFs. In reality, except for HOSE, none is capable of accurately and continuously collecting and calculating the volume of free-float shares of stocks in ETFs and estimating whether they are big enough to meet such continuous purchase and sale or not. Remarkably, foreign ETFs very much concern the current room (amount of shares foreign investors are allowed to buy). If the room is full, foreigners cannot buy more.
Hence, the best way is to rely on HOSE to create portfolios. The VN-30 Index is essentially a list of large-cap stocks which account for 80 percent of the total market capitalisation and represent all stocks listed on HOSE. As it has sufficient data (as more than 300 listed companies report adequately) to calculate free-float shares, HOSE can helps DC, SSI and other ETFs to create index trackers. Securities companies, investment funds and other related entities need much less effort to attain what they want very much and HOSE also benefits from this (creating sub-indices for the market, following international practices adopted by developed stock exchanges in the world, making money from selling information about the structure of the VN-30 Index to its members in need). To a greater extent, the entire market will benefit from this: Integrating with international practices, attracting other foreign ETFs (or portfolio investment), boosting the market liquidity. – Source:StoxPlus.com

Tags: HOSE, vietnam stock, Vietnam stock market, Vietnam stock news, VN-30 Index, VNindex

Posted by quynhdn on Oct 3 2011. Filed under Markets, Stock. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry