If any country has been working hard to improve its capital markets recently, it’s Vietnam. Early last year, the country’s government said it was pushing its state-owned enterprises and banks to list on the domestic stock markets to take advantage of the strong performance of the indices. Admittedly, there was no deluge of IPOs following the announcement, but primary issuance did see a small jump, with names such as Vietnam Airlines hitting the market.
Vietnam is also tackling the problem of lacklustre IPO volumes by putting together a list of the 280-odd state-owned companies it wants to monetise by the end of the year through fresh share sales, though there is a degree of scepticism about whether this can be achieved.
If that wasn’t enough, in February Vietnam announced changes to laws governing mergers and acquisitions, in a bid to make it easier for foreign investment to come into the country. This was followed by talks in April that foreign investors could soon start taking stakes of more than 30% in local banks. Rules in place at the moment cap foreign shareholdings to 30% and limit a single foreign strategic investor to a one-fifth stake in companies.
Against that backdrop, talk of bringing the Hanoi and Ho Chi Minh stock exchanges together is definitely a smart move — and desperately important. For a market where deal and trading volumes are already thin, having two competing bourses serves no real purpose and the country has finally come to realise that.
The scale of the problem becomes clearer when you look at the stats. The Ho Chi Minh bourse, the bigger of the two, has daily trading volumes typically in the range of VND1.1tr ($52m), and is home to mainly large cap companies. The Hanoi exchange registers daily volumes in the range of VND500bn, and contains mainly small and medium sized companies.
So the news that the government is considering making Hanoi the headquarters for the merged Vietnam Stock Exchange would be a step backwards for the country’s capital markets development.
Ho Chi Minh is without doubt better placed. The city is not only where the bulk of domestic and international companies have their main Vietnam office, it’s also where global financial institutions have their country headquarters. In addition, companies listed there account for a much bigger pie of the country’s GDP than those trading in Hanoi.
Its history is also longer than that of the Hanoi exchange. The Ho Chi Minh index kicked off in 2007, after seven years of the market operating as a securities trading centre. The Hanoi exchange, on the other hand, started operations in 2009.
It is of course understandable that Vietnam would want its main exchange to be based in the country’s political capital — especially in a year when the country is celebrating 40 years since the north and south were reunited. But there are plenty of examples of countries where the financial and political capitals are separate. Germany springs to mind, as does Vietnam’s neighbour, China.
By making a move to combine its two exchanges, Vietnam has opened the door to more business. But if it doesn’t make a rational decision about where to base the market, it will find those same doors closing before too long.