Capital market development: A case study in establishing capital market in Vietnam

ACKNOWLEDGMENTS The author would like to express her sincere gratitude to Dr. Fredric W. Swierczek, Research advisor and Chairman of the Research Committee for his valuable guidance, constructive comments and encouragement throughout the research study. Thanks are also due to Prof. I. M. Pandey and Dr. Truong Quang for their valuable contribution in serving as Committee members, as well as for precious suggestions and comments on the research study. The author would like to take this opportunity to express her deep appreciation to the Government of Switzerland, Asian Institute of Technology, the Ministry of Education and Training of Vietnam and the National Economics University for organizing the Management Development Program in Vietnam (SAV program) and for providing her with a scholarship to complete her MBA at AIT (Thailand). Thanks are also extended to the Ministry of Finance and the State Bank of Vietnam, Vietnamese banks and foreign bank branches and other institutions in Hanoi that she visited for her data collection. The author remains indebted to her parents, her sisters, her brother in-law, her nephews who continued moral support during her whole study period in Ho Chi Minh (Vietnam) and in AIT (Thailand). Last but not least, the author would like to thank Binh, Ninh, Nhuan, Shantanu and all the faculties and friends at SAV, SOM and AIT for their help and boundless inspiration. Abstract Securities market development is of paramount importance to the development of economy. With increasing emphasis on internationalization, industrialization and globalization most developing countries are placing importance on their stock market development as this sector of the financial sector has lagged behind in most emerging markets. Vietnam now is preparing infrastructure, legal documents for establishment of securities market. The intention of this research was to explore factors influencing this establishment as well investors’ attitudes toward new market in Vietnam. The research was carried out on the basis of data collection which were collected from secondary sources, in-depth interviews officials working in the State Bank and Ministry of Finance, direct and indirect interviews in some banks and investors. Table of contents TITLE PAGE Title page Acknowledgment i Abstract ii Table of contents iii List of figures vi List of tables vii List of abbreviations viii CHAPTER I INTRODUCTION 1.1. Background 1 1.2. Rationale 1 1.3. Objectives 2 1.4. Scope of the study 2 1.5. Research methodology 2 1.5.1. Information requirement 2 1.5.2. Data colection 3 1.5.3. Framework of study 4 CHAPTER II LITERATURE REVIEW 2.1. Definitions 5 2.1.1. Capital market 5 2.1.2. Efficient capital market 6 2.2. Structure of capital market 6 2.3. Significance of capital market 7 2.3.1. Economic development and capital market 7 2.3.2. Mobilization of saving 9 2.3.3. Determinants of saving 9 2.3.4. Role of financial intermediaries 10 2.4. What is securities market 11 2.4.1. Concept of securities market 11 2.4.2. Functions of securities market 11 2.4.3. Advantages of securities market 13 2.4.4. Disadvantages of securities market 14 2.4.5. Supply of securities 14 TITLE PAGE 2.4.6. Demand for securities 14 2.5. Instruments in the securities market 15 2.5.1. Stocks 15 2.5.2. The bond market 16 CHAPTER III EXTERNAL FACTORS INFLUENCE ESTABLISHING CAPITAL MARKET IN VIETNAM 3.1. Review of macro-economic performance 17 3.2. The financial environment 19 3.3. The starting point of securities market 23 3.3.1. The economic factors 24 3.3.2. The legal situation 25 3.3.3. Awareness of the securities market 25 3.4. A prerequisite for the emergence of a securities market in Vietnam 25 3.4.1. Development of bid market 25 3.4.2. Equitisation of enterprises 26 3.5. The role of the securities market for the economic development 29 3.6. The needs to establish of the securities market 30 3.7. Legal issues and regulatory framework 31 3.7.1. Generally legal issues 31 3.7.2. The regulatory framework 32 CHAPTER IV INTERNAL FACTORS IN CAPITAL MARKET 4.1. The organization of the market 36 4.1.1. The securities State Commission 37 4.1.2. Stock Exchange 39 4.1.3. The Securities Companies 42 4.1.4. Investment Funds 44 4.1.5. Insurance Funds 44 4.1.6. Pension Fund 45 4.1.7. Auditing Companies 45 TITLE PAGE 4.1.8. The securities depository and clearance house 45 4.1.9. Center for securities analysis 45 4.10. Computer center 45 4.2. Model for organizing securities market 45 4.2.1. The objectives 45 4.2.2. Choice 46 4.2.3. The choice of model of securities market in Vietnam 46 4.3. Appropriate steps to set up securities market 47 4.4. Securities 48 4.4.1. Government bonds 49 4.4.2. Bank bonds 50 4.4.3. SOE bonds 50 4.4.4. Corporate bonds and stocks 50 4.5. Advantages 50 4.6. Obstacles 51 4.7. The investors’ attitudes toward the market 52 CHAPTER V CONCLUSION AND RECOMMENDATION 5.1. Conclusions 55 5.2. Recommendations 56 5.3. Limitations of the study 57 References 58 Appendix A: Guide-lines 59 Guide-line for policy makers 59 Guide-line for member banks 62 Guide-line for investors 64 Appendix B 65 Decree No.120 dated 17 September, 1994 of the Government on the promulgation of the temporary Regulation on the issuance of bonds and stocks of SOEs 65 Appendix C 73 Decree 75-CP dated 28, November, 1996 of the Government on establishing Securities State Commission 73 Appendix D 76 List of Foreign Investment Funds 76 LIST OF FIGURES Figure 1.1: Framework of study 16 Figure 2.1: Structure of the securities market Figure 3.1: The portion of loan between State- and Private-economic sector 20 Figure 3.2: The changes in loan proportion 20 Figure 4.1: The participants in the securities market 35 Figure 4.2: The organizational structure of Securities State Commission 37 Figure 4.3: The model of Stock Exchange organization 40 Figure 4.4: The organizational structure of domestic Securities Company 42 Figure 4.5: The network of Stock Exchange 43 LIST OF TABLES Table 2.1: Organization of capital market 5 Table 3.1: Macro-economic indicators during period 1991-1996 18 Table 3.2: Savings and investment, 1991-1995 (percent of GDP) 18 Table 3.3: Foreign Direct Investment (in US$) 19 LIST OF ABBREVIATIONS CBs : Commercial Banks MoF : Ministry of Finance SBVN : State Bank of Vietnam SCs : Securities Companies SE : Stock Exchange SOCBs : State-owned Commercial Banks SOEs : State-owned Enterprises SSC : Securities State Commission