A research study submitted in partial fulfillment of the requirements for the degree of Master of Business Administration, School of Management

Research Studies Project Report (M.B.A.) - Asian Institute of Technology, 2001

In an attempt to give a new impetus to the country's economic development, Vietnam opened its first stock market in Ho Chi Minh City on July 201 h, 2000. In theory, this is meant to serve as the capital market where cash-hungry enterprises (state-owned or private) could obtain the needed resources to finance their business expansion strategies or modernization plans. On the macro level, the country needs a platform where government bonds could be sold for a longer maturity to provide large capital for big projects. The establishment of a stock market is thus justified. However, its performance after half a year in operation has shown little achievement as compared to its set objectives. Many reasons have been quoted to blame for the slow moving evolution of the newly setup stock market, such as: demand surpasses supply (only five listed companies so far); ineffective operation as a result of obsolete infrastructure, and lack of well-trained and experienced staff; incomplete and inconsistent legal framework, which necessitates state's intervention too often and too long; slow progress in the equitization/ privatization state-owned enterprises, which limits the number of potentially listed companies to the minimum, etc. Indeed, these shortcomings seem to bear the same pattern of similar economies in transition, which attempt to accelerate the process of national development and integration into the world economy. Against this background, the research study aims to analyze the reasons leading to the disappointing results of the Ho Chi Minh Stock Exchange in the first phase of its existence and development. As the main sources of analysis, the study was based on the official reports and articles on the stock market development, observation on the trading floor, and interviews of traders and officials concerned. On the basis of the study findings, some recommendations are provided to develop the stock market in Vietnam. It is virtually necessary to improve an overall financial market conditions that lay the firm ground for effectively operating the capital market in general and the stock market in particular. The enlargement of the number listings and speeding up the on-going equitization process as well as further developing bond market need to be implemented. As a complementary solution to give a boost to the poorly performing market at present, it is suggested that an over the counter market should be soon organized. The building up compatible technical facilities and better staffing for the stock market are also seen as a prerequisite to make the stock market function well. These measures should go in-hand with other improvements such as making the stock market more transparent and leaving the market to determine the stock price by itself. Lastly, due consideration should be given to completing the legal framework and promoting public education and investor awareness on the benefits and functioning of the stock market. It is believed that the experience learned from the country's first stock market in Ho Chi Minh city, as presented in this study, will certainly serve as a frame of reference for the second stock market to be opened soon in Hanoi, the capital of Vietnam.