How will securities services develop?

The stock market has just begun taking shape in Vietnam in the past few years. However, the market scale and the demand for securities services are all expected to see sharp increases in the time to come.
Figures released by the Ministry of Finance show that the stock market has made big leaps in the recent past with the total market capitalisation at 22.7% of GDP by the end of 2006, or 20-fold higher than 2005.

The number of listing companies has risen from 41 in 2005 to 193 in 2006. Some 100,000 accounts for securities transactions were opened in December 2006 (including 1,870 accounts by foreign investors), three-fold higher than the end of 2005. It is estimated that the figure may see a 3- or 4-fold increase by 2010.

Regarding institutional investors, there have been 35 investment funds, including 23 foreign based ones and 12 domestic funds. Moreover, there are nearly 50 institutions which make authorised investments via securities companies.

Nguyen Van Chi, Deputy Director of the International Cooperation Department under the Ministry of Finance (MoF), said that the appearance of foreign institutions in the market would have good impact on the market’s development. However, there are latent high risks as the infrastructure system is not developed enough to meet the market demand. The rapid development of the stock market will also be a big challenge for the State Securities Commission and MoF to keep supervision over and control transactions.

Meanwhile, Do Ngoc Huynh and his collaborators, the policy consultancy team, have released the results of the survey, which showed that the demand for new services, like investment, finance, legal consultancy, and asset management will increase in the coming time.

The demand for these services will increase as the result of more listing companies and higher volume of securities to be issued in the market.

Under WTO commitments, foreign securities service providers will have the right to open representative offices and set up joint ventures with up to 49% of foreign ownership.

They will be able to set up 100% entities providing securities services five years after the admission time, and set up branches of foreign companies in Vietnam which provide services like asset management or financial information providing.

The number of securities companies has seen a considerable increase, from 14 at the end of 2005 to 55 by the end of 2006. These companies have the average chartered capital of VND77bil/company ($4.81mil), an increase of 26% over the end of 2005.
There are 18 operational investment fund management companies, 41 institutions which get involved in securities depository activities, six depository banks, 8 independent auditing firms, which have been authorised to provide auditing services to the companies, operating in the stock market.

Up to now, the participation of the foreign side on the stock market has just been seen in individual or institutional investors rather than securities service providers, excluding several fund management companies.

Though foreign institutions and individuals have just shown limited involvement in Vietnam’s stock market, it is expected that the involvement will become deeper in the time to come, when the market further develops. Therefore, domestic securities service providers will have to face fierce competition with foreign rivals.
Experts said that it is unavoidable to see more and more service providers in the market, including foreign ones. The participation of foreign service providers should be seen as a good thing, which will create favourable conditions for technology transfer and drive the market to a high level of professionalism.

Source: VNE