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Stock market was close to collapsing in the past, but still moved forward

Since 2008, the Vietnamese stock market has gone through four difficult times, when the market was thought to collapse.


But this did not occur, and it will continue to survive this time also. 

VietNamNet would like to introduce an article by Dr Le Xuan Nghia, a member of the National Financial and Monetary Policy Advisory Council, which shows his views about the corporate bond and stock markets.

Better management 

In accordance with international practice, corporate bonds are not guaranteed by assets, including real estate. This is because the buyers of the bonds are individuals and the issuers are institutions, so handling secured assets is extremely complicated.

And international practice doesn’t set forth supervision over capital use to find out if the capital is used for right purposes. This proves to be an impossible mission. Commercial banks understand this well. Even though they send staff to businesses, they cannot supervise how the businesses use capital, let alone individuals. 

Other countries have a completely different approach to bonds than Vietnam. They have credit rating firms which give ratings to bond issuers, which give information to investors for reference when deciding whether to buy bonds. 

If we spend time to supervise the use of capital, we will get bogged down. We have to amend the laws in that directions. If we still require mortgaged assets and supervision over the use of capital, this would be contrary to international practice. 

The thing that needs to be done at this moment is establishing credit rating firms. There are two such firms in the market, but they operate on a limited scale and they still don’t have enough experience and credibility to expand. It’s necessary to license more credit rating firms, and allow them to team up with international companies to set up joint ventures and rate bond issuers. 

If we loosen control today and tighten control tomorrow, i.e., policies change all the time, the corporate bond market won’t be able to develop. Most of the enterprises issuing corporate bonds in Vietnam are commercial banks and real estate firms. Enterprises such as textile and garment, footwear and processing companies ought to have issued corporate bonds, but the market interest rates are overly high for them. 

So, if letting the corporate bond market develop sluggishly within a narrow framework, enterprises won’t be able to develop. Startups cannot bear such high interest rates. I think that management agencies need to keep a more open view and they should not think there are serious problems in the bond market only because of several incidents.

Tan Hoang Minh case 

In the case of Tan Hoang Minh, I think there is a way to deal with it. First, of all, it’s necessary to learn how China is handling its Evergrande case. The Chinese government acts as a guarantor for 100 percent of bonds issued by Evergrande, which is worth 2 percent of GDP, a huge figure. 

The Chinese government does this to protect their prestige in the eyes of international investors. It also asks local authorities to speed up the implementation of Evergrande’s projects and deliver houses to people on schedule. 

We still don’t have to apply such drastic measures in the case of Tan Hoang Minh. The amount of bonds issued in Vietnam is not too high, and there is no international bond. 

I think it’s necessary to use the assets of Tan Hoang Minh to return money to investors, not just for the sake of current investors, but also for investors in the future and the corporate bond market in the future.

Bond market development is a must 

Developing the corporate bond market is the right policy because it helps ease the burden on monetary policy. Of the total financial market share, total bank assets account for 95 percent, which is a very high figure. Banking operations are dominant in the financial market, which shows the underdevelopment of the financial market and the economy. 

The credit structure in other countries has changed rapidly in the last 20 years. In Europe, bank credit for enterprises, including real estate and production ones, just accounts for 20 percent. In Vietnam, bank loans account for 80 percent of outstanding loans.

So, businesses should wean themselves off bank loans and only borrow money from banks for short-term capital. To have long-term capital, they need to use stocks and corporate bonds.

How to deal with rumors 

In general, when bad rumors are spread, they have a big impact on the stock market. However, such impact has become weaker recently, and the incidents are no longer big shocks like we saw in the past.

This shows that the market has become larger, resilience has become stronger, and people have got used to risks. 

I think the Vietnamese stock market still has great potential to develop. About 40-50 percent of population in Southeast Asia could make investment in securities, while the figure is just 3 percent at this time.

Despite some problems, the stock market has important fulcrums to develop. Vietnam’s economy has recovered rapidly after the pandemic. The macroeconomic fundamentals are stable. We estimate that the inflation rate will be over 4 percent this year, or much lower than the initially predicted 6-7 percent. 

The Prime Minister’s advisory board has many times proposed that the State Securities Commission should belong directly to the Government instead of to the Ministry of Finance.

Le Xuan Nghia


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