Include stock market in reform process: experts

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As economic reform discussions gain momentum, experts believe the stock market should not be left behind in restructuring efforts aimed at making the economy stronger.

"The stock market is a channel for medium- and long-term capital, so we cannot rule it out if we really want to restructure the economy," said Professor Le Dat Chi of the Ho Chi Minh City Economics University.

"Maybe the authorities see the stock market as a place for gambling, which explains why it has been a "˜black sheep' in most of the policies regarding capital markets so far," he said.

Chi said that to some extent the market itself is to blame for this situation.

"It keeps moving from one extreme to the other and doesn't follow any rule," he told Thanh Nien.

"As for companies, they issue shares rashly and then don't use the funds effectively. They attract capital from shareholders but instead of investing the money in production, they throw it back into the stock market.

Reforms to restore order to the stock market and allow it to play its role in the national economy are an urgent task, he said.

The benchmark VN-Index of the Ho Chi Minh Stock Exchange has lost around 20 percent this year as prolonged economic difficulties hurt businesses and stifle investor confidence.

Analysts, seeing some stocks trading as low as VND1,000, or less than 5 US cents, fear there is no end in sight to the market slump yet. Some brokerages continue to advise traders to stay on the sidelines and wait for positive signals, even if there are still opportunities for long-term investors.

Trifocal plan

The government's plans to restructure the economy have three focus areas for reforms: banks, public spending and state-owned enterprises.

Chi said reforms in all these areas are not possible without taking the stock market into consideration.

He said what has happened this year proves that the dependence on banks for capital does not work out well for the economy. "Immediately after credit was tightened, many companies went bankrupt," he said.

"A developed stock market will help ease the pressure on the banking system," Chi said. Banks will only focus on providing capital on a short-term basis while long-term sources of funds can be sought from the stock market, he added.

The restructuring of state-owned companies cannot be separated from stock market reforms either, Chi said.

"If we want to sell shares in state companies, we need the stock market as a channel," he said. "The market is also a place where the performance of companies, financial institutions and the whole economy can be monitored."

Chi said he is not a strong advocate of plans to cut public spending, arguing that "investment is necessary for economic growth."

"But if public investment is to be cut, there has to be a new capital source instead. I think this new source can come from the public and overseas resources, via the stock market," he said.

Overcrowded market

Chi said there are too many brokerages in Vietnam and the number should be cut by half.

He said the average trading volume of the Vietnamese stock market is between VND2.5 trillion to VND3 trillion, but it is only around VND1.2 trillion per session now, amidst the downturn. That translates to brokerage fees of some VND2.3 billion a month for each company, which is not enough to cover operating expenses.

With 105 brokerages, the market is really crowded, Chairman Vu Bang of the State Securities Commission was quoted as saying in Monday's Lao Dong (Labor) newspaper.

The companies made a combined loss of VND2 trillion ($95 million) in the first nine months of this year, compared to profits of VND3 trillion in 2009 and VND1.8 trillion last year, Bang said, adding that 71 brokerages have yet to break even.

It's difficult for all brokerages to survive and cutting down the number of companies is a must for the market, he said, noting that China has successfully reduced the number of brokerages from around 2,000 to just 107.

The State Securities Commission is now mapping out aggressive reform measures for the next four years, Bang said. "The objective is not to support large companies but to review all brokerages based on safety criteria. Large but unsafe ones will be taken care of too."

Any brokerage put under special watch will have to reform by selling bad assets, improving risk management and narrowing their business activities, or else it may have its licenses revoked, he said.

"The first thing to do is to suspend brokerage services of weak securities companies to protect clients. If they get better, they can resume the services later."

Economist Chi said securities companies should stop offering margin services and managing their payment accounts, which should be handled by banks.

What they really need to do is to provide better portfolio management and consultancy services, he said.

"When securities companies compete with each other on these services alone, the competition will weed out weak firms without leaving negative impacts on the market and investors," Chi said.

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