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Foreign investors want Vietnam to adopt best stock market practices

Foreign investors are calling for scrapping the stipulation that investors must have funds and securities beforehand to trade.

Dominic Scriven, head of the Vietnam Business Forum’s (VBF) capital market working group, made the proposal at the VBF event in Hanoi Tuesday in which Prime Minister Nguyen Xuan Phuc participated.

This is excessive regulation, Scriven said, especially since it applies to both investors and brokerages.

The regulation is out of touch with international and regional best practices, which apply this only to brokerage firms and not investors, he noted.

Scriven claims the rule affects market liquidity, diminishes the role and dynamics of brokerage firms and causes investors, especially foreign, to suffer sizable costs for currency exchange.

The working group proposed amendments to the Securities Law to remove this requirement while ensuring market safety.

In most markets around the world, “short” selling and buying without putting up money upfront are allowed, meaning investors can buy stocks without having to have money in their account or sell without possessing a stock. They are subsequently allowed to square off the transaction or pay cash as the case may be.

Dominic Scriven is executive chairman of Dragon Capital, a Vietnam-focused financial services group.

Dominic Scriven is executive chairman of Dragon Capital, a Vietnam-focused financial services group. Photo acquired by VnExpress

Scriven also proposed allowing non-voting depository receipts (NVDRs), saying this would allow foreign investors to invest in public companies and listed firms even after the foreign ownership cap is reached.

“NVDRs may help resolve two issues. Firstly, the government can still keep a check on foreign equity in line with existing laws and international treaties. Secondly, the legal status of a company does not change when the foreign equity ratio passes 51 per cent.”

Pham Hong Son, vice chairman of the State Securities Commission (SSC), said the SSC is seeking market stakeholders’ comments on amendments to the Securities Law, and many proposals are under consideration.

He said the government plans to introduce stringent requirements to improve the status of Vietnam from a frontier to an emerging market.

“In fact, certain key criteria for the upgrade such as size, market transparency and information disclosure are basically met.”

According to the working group, Vietnam has three securities markets with a total capitalization of some $180 billion. These are the Ho Chi Minh Stock Exchange, the Hanoi Stock Exchange and the unlisted public company market UpCom. The country also has a bond market with a capitalization of around $50 billion.

The combined $230 billion is quite large and exceeds the ratio of 80 percent of GDP set by the government last year, the working group said in a report.

Markets

As trade spat cools, Chinese firms reconsider Vietnam move

With China and the U.S. suspending imposition of new trade tariffs, Chinese companies are rethinking their move to Vietnam.

The cost of building a new factory and hiring land at industrial parks in Vietnam has increased in the past few months and become an obstacle for many foreign investors, including those from China.

Given the higher costs, many Chinese export manufacturers, especially small and medium-sized ones, have taken advantage of the recent trade cease-fire between China and the U.S. to postpone plans to relocate their factories to Vietnam, according to South China Morning Post (SCMP).

Prices to rent industrial land in Vietnam have increased in recent time.

Prices to rent industrial land in Vietnam have increased in recent time.

U.S. President Donald Trump and Chinese President Xi Jinping have recently agreed to a ceasefire in a trade war that has seen the flow of hundreds of billions of dollars worth of goods between the world’s two largest economies disrupted by tariffs.

The two leaders agreed to hold off on imposing more tariffs for 90 days starting December 1 while they negotiate a deal to end the dispute following months of escalating tensions, according to Reuters.

But experts repeatedly expressed doubt that any concrete steps to totally ease tensions between the two economic giants can be achieved in so short a time.

“This is not a truce, this is not an armistice,” Steve Okun, senior advisor at McLarty Associates, told CNBC. He noted the additional tariffs that the U.S. and China have imposed on each other’s products are still in place, so the 90-day withholding of further levies doesn’t signal the end of the trade fight.

Even so, many export manufacturers, especially small and medium-sized firms (SMEs) in China, have jumped at the chance to postpone.

Xie Jun, a Chinese furniture exporter, said the cost of building a new factory in Vietnam had soared in the past few months and become unaffordable to many.

A sofa foam and sponge factory owner in China’s eastern province of Zhejiang moved to set up a factory in Vietnam’s southern Dong Nai Province early this year, he said.

The preparatory steps cost him nearly 10 million yuan ($1.4 million), including paying for and converting the industrial plants, transferring automated production lines from Zhejiang, as well as paying allowances to send skilled Chinese workers there.

The expense was even higher than building a new factory of the same size in Zhejiang, Xie said.

“So the [trade war] truce is really a relief for us. And we hope the government can really end [the trade war] next year,” Xie told the SCMP.

At an industrial park in Dong Nai, the price to rent industrial land on a long-term lease of up to 50 years reached $90 per square meter as of last month, up from $60 to $70 last year.

The prices also increase in other localities.

The average rent of industrial land in northern Vietnam hit $82 per square meter per lease term in Q3, an increase of nearly 9 percent compared to Q1, according to a report of real estate service firm Jones Lang LaSalle (JLL) on Vietnam’s property market in the Q3.

Hanoi’s average rents increased significantly to $137 per square meter per lease term, the highest in the north, driven by limited supply.

JLL said the country’s industrial properties will remain desirable due to strong foreign direct investment coming mostly from Japan, South Korea and Taiwan.

Gao Jian, co-founder of Vnocean Business Consulting Service company, which helps more than 50 industrial parks in Vietnam to recruit Chinese manufacturers, said there were various costs associated with setting up a plant.

“If we talk about founding a small electronics factory of about 300 workers in popular industrial parks near Ho Chi Minh City, it would cost about $1 million,” Gao said.

Thus, for those firms that remain in China, the tariff truce has allowed them to cling to the possibility that there might be no need to relocate, at least in the short run.

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Banking

Vietnamese currency falls to new low, could go lower

The official exchange rate between Vietnamese dong and U.S. dollar reached its highest this year Wednesday, and experts said the dong could depreciate further.

The State Bank of Vietnam set a central exchange rate of VND22,757 on Wednesday, the sixth time the rate has gone up in the last two weeks.

An employee counts U.S. dollar and Vietnamese dong at a bank in Ho Chi Minh City, Vietnam. Photo by VnExpress/Anh Tu

An employee counts U.S. dollar and Vietnamese dong at a bank in Ho Chi Minh City, Vietnam. Photo by VnExpress/Anh Tu

The dong has fallen by VND352, or 1.57 percent, against the greenback since the beginning of the year.

The dollar’s value increased at commercial banks. At 3p.m. Wednesday, Vietcombank sold the dollar for VND23,350, VND15 higher than Tuesday.

Vietinbank also sold its dollar for VND23,350, VND17 higher than Tuesday, while BIDV sold it at VND23,355, VND25 higher.

The dollar also inched up on the free market. At 11.30 a.m. Wednesday, it was selling for VND23,360-23,410, VND10-20 higher than on Tuesday.

Economist Nguyen Tri Hieu said that the reason for the hike was high demand for dollars toward the end of the year as businesses often import large amounts of materials needed for manufacturing.

The ongoing U.S.-China trade war continues to exert exchange rate pressures, despite the U.S. announcing a 90-day halt on additional tariffs on Chinese goods starting next year, as there is no certainty that tensions will decline, he said.

“There is a high possibility that the dong’s value will continue to fall this year,” Hieu told VnExpress International.

Hieu said that the government should also devaluate the dong against the Chinese yuan so that the trade deficit between Vietnam and China can be reduced.

Vietnam relies heavily on China for materials and equipment for its labor-intensive manufacturing sector.

As the yuan’s value has fallen by 9 percent to the dollar since the beginning of this year, some experts have said that the dong should be devaluated even more to avoid impacts a cheaper yuan. Cheap made-in-China goods could be imported in large quantities to Vietnam and compete with domestic products, they said.

But economist Tran Dinh Thien said that the dong should be kept at a balanced rate between the U.S. dollar and the Chinese yuan. A 2-3 percent band a year is acceptable, he added.

A stronger dollar will benefit exporters, but will also create stronger pressure on inflation and interest rates which will increase business costs in a country with high imports and public debt, Thien said at a recent conference.

He added that the fluctuation of the dong should be controlled to help local companies conduct their business with greater certainty.

The government doesn’t want businesses to suffer shocks, he said.

Prime Minister Nguyen Xuan Phuc had said in August that the devaluation of the dong needs to be kept within a 2-percent band this year compared with the end of last year.

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Featured

Start-ups must join int’l community: Deputy PM

We should change the way we think, look beyond the country and become part of the world community as it has shrunk, Deputy Prime Minister Vu Duc Dam said.

This has been made possible thanks to closer connections and exchanges, Deputy PM Dam said while delivering the opening speech titled “Promoting National Entrepreneurship” during a National Start-up Initiative workshop took place in Ha Noi yesterday.

Deputy Prime Minister Vu Duc Dam ( second from right). — Photo vnexpress.net

Deputy Prime Minister Vu Duc Dam ( second from right). — Photo vnexpress.net

Dam said suitable policies played an important role in creating a favourable environment and conditions for enterprises, including the start-up business community. However, just untying and removing obstacles to create a favourable environment and ecosystem was not enough. One needed to accelerate the implementation of these policies for everyone and all businesses to have opportunities to develop their start-up movement and strong growth.

The leader said that the strong growth of ICT today was making the world smaller. “We must change our thought process to grasp and bring into full play our advantages in science and technology.”

The Deputy PM said that the Vietnamese government was willing to invest and join hands with private investors to support the national start-up initiative from inventors.

Dam made a promise that he would always support start-up businesses and the government would address problems facing start-up businesses as soon as possible.

“The Vietnamese government would continue to work with you to develop policies to create the most favourable conditions for the start-up community and incubators,” Dam said.

Dean of Ha Noi University of Technology Hoang Minh Son told participants that to make a success of the national start-up one needed to have excellent innovative ideas and a firm base of knowledge.

Son said businesses should assist young people in R&D and make them a driving force in joining the national start-up initiative programme.

At the seminar, participants also discussed such topics as the role of each component in the start-up ecosystem, how to build a start-up ecosystem from the perspective of science and technology, spotting the key problem which needs solving in order to promote entrepreneurship in Viet Nam, as well as proposing initiatives to make Viet Nam a start-up nation.

Also in the framework of the programme, FPT and Dragon Capital Group, signed a co-operation agreement for the establishment of the Vietnam Innovative Start-up Accelerator (VIISA for short). VIISA will be an open-ended fund with the participation of many large enterprises and investment funds. FPT and Dragon Capital Group are the founders.

The fund aims to train, invest and support start-up groups in the fields of information technology, mobile, Internet and finance so that they would become successful businesses. The first start-up accelerator training course of VIISA is expected to officially open in the second quarter of 2016.

The establishment of VIISA was in response to the national programme to build Viet Nam’s start-up ecosystem launched by the Ministry of Science and Technology. VIISA will create a new start-up ecosystem to help ensure that Viet Nam will have 5,000 technology companies by 2020. The founders affirmed that they would try their best to make VIISA a centre to connect Viet Nam’s start-ups with businesses and investors around the world. Currently, FPT and Dragon Capital Group, are calling for more names among Top 500 enterprises in Viet Nam as well as funds and start-up incubators worldwide to build and develop VIISA.

Executive Chairman of Dragon Capital Group, Dominic Scriven OBE, said, “We believe in the information technology and mobile revolution. We think the growth engine of the economy in the next decade will lie with innovative start-ups that we see today. By starting to work on this programme, we do hope to accelerate the commercialisation and the application of innovative technologies in Viet Nam.”

After the declaration of the establishment of VIISA, the founding members signed a memorandum of agreement on the development of start-up activities at universities and high schools including VNU University of Engineering and Technology, Hanoi University of Science and Technology, FPT University and Hanoi – Amsterdam High School.

The seminar was attended by around 50 guests from the Ministry of Science and Technology, Ministry of Education and Training, VINASA and representatives from other important components in the start-up ecosystem such as investment funds, enterprises, associations, and educational institutes.

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