Stock market will develop but not make rapid leaps: expert

Mr Nghia started the interview with the press by saying that the stock market will see further increases. The P/E (price on equity) index is now 38, quite high if compared to the normal level (12-17 times higher). However, the stock market will still see further increases since Vietnam is an emerging market, while the international capital flow is moving towards Asia. A watchdog specializing in supervising the financial market will be set up in the near future, which will not directly interfere in the market, but will only support the market development. Vietnam’s stock market has not been so hot that it needs to be restrained. Do you mean that Vietnam will have a watchdog to supervise financial activities? The Government plans to set up a committee in charge of supervising the financial market operation (securities, banking and insurance). The committee will take remote supervision over the management agencies like the Ministry of Finance and the State Bank of Vietnam (SBV). SBV is also considering setting up a supervision and inspection agency, which will be the result of the reunification of the departments with the same functions. Is it true that the establishment of the financial supervision committee aims to receive the new capital flows and assist the development of the stock market? The international capital is now flowing into Asia. In Asia, China and Vietnam prove to be the two most attractive destinations. Vietnam’s stock market will develop quickly for two reasons. First, Vietnam plans to equitze 70 groups and big generations. If one third of the 70 units list on the bourse, it would be enough to make the total supplies in the market increase sharply. I think this will happen from July towards the years end. The profuse supplies will make the market less hot. Second, there will be several hundreds of foreign investors coming to Vietnam. Many famous financial consultancy groups and banks will be present on the market. Their clients are big investors, who will ask them to do research about Vietnam. There will be a big capital flow into Vietnam’s securities. The stock market will develop strongly, and it will need to be supervised in order to avoid sudden changes, that can cause shocks. You seem to be very optimistic. But why does SBV plan to control the commercial banks that make investment in securities if you believe that the stock market will develop? The Government has been aware of the need to keep the stock market in stable operation. Any troubles in the stock market will directly influence the monetary market. It is the SBV’s task to guarantee the capital raised from the public. Commercial banks have been advised to think carefully before making decisions on funding securities trading deals. For example, when the P/E is three times higher than the normal level, banks should give the loans valued at 1/3 of the securities’ market values. If banks keeps cautious with the loans mortgaged by securities, it would be safer for investors, the stock market and banks as well. Do you mean that SBV will not ask banks to tighten the funding of securities trading deals? No, not to tighten the loaning to securities traders, but to protect them, give advice in order to avoid risks. Foreign investors always are methodical when making investments, even if they just make short term investment. Meanwhile, domestic investors buy or sell securities just by feelings or follow the moves of someone else. It is very risky. Will the Government consider raising the maximum foreign ownership ratio in local banks from the current 30% limit? From April 2007, foreign bankers will have the right to set up 100% foreign owned bank entities in Vietnam. However, I think that many foreign banks will be set up in the first years after Vietnam joins the WTO as they still expect that the 30% foreign ownership ratio will be raised. You may see that the current laws allow local banks to get M&A (merge and acquisition), but aim to prevent foreign banks from swallowing domestic banks.

Source: Thời báo Kinh tế Sài Gòn

Bank revenues drive up dividends

Following announcements of double and even triple annual earnings growth over the last few weeks, bank stocks are again in vogue as investors prepare to reap high dividends payments. Asia Commercial Bank (ACB) topped the money list, reporting VND568 billion (US$35.5 million) in 2006 pre-tax profits. ACB mobilised nearly VND39.5 trillion (US$2.5 billion) through selling shares and deposit services, and provided VND17.1 trillion (US$1.1 billion) in loans, a 77 and 79 percent year-on-year increase respectively. The bank is expected to issue a 38 percent dividend payment, 8 percent of which will be issued in cash while the remaining 30 percent will be through share options. With pre-tax profits at VND447 billion (US$27.93 million), Sai Gon Thuong Tin Commercial Bank (Sacombank) plans a 20-22 percent dividend issuance. Sacombank intends to use much of last year's earnings as legal and working capital. Meanwhile, shareholders of the Export and Import Commercial Bank (Eximbank) expect to receive a 55 percent dividend payment on the back of VND340 billion (US$21.3 million) in pre-tax profits. In addition to strong profits, banks also reported strong asset accumulation. ACB reported VND42.5 trillion (US$2.65 million) in assets, more than double from where it was at the start of 2006. Sacombank and Eximbank saw similar results with VND24 trillion (US$1.5 million) and VND17 trillion (US$1.06 million) in assets, up 58 percent and 49 percent respectively over the previous year. Industry insiders attributed the impressive results to the country's economic growth, and the development of financial products and services, like term deposit accounts and preferential credit policies.

Source: Vietnam Agency

Stock Market Crash

1929 - The stock market crash ushered in the Great Depression.

What made the stock market crash? Here's a brief summary.

Capital is the tools needed to produce things of value out of raw materials. Buildings and machines are common examples of capital. A factory is a building with machines for making valued goods. Throughout the twentieth century, most of the capital in the United States was represented by stocks. A corporation owned capital. Ownership of the corporation in turn took the form of shares of stock. Each share of stock represented a proportionate share of the corporation. The stocks were bought and sold on stock exchanges, of which the most important was the New York Stock Exchange located on Wall Street in Manhattan.

Throughout the 1920s a long boom took stock prices to peaks never before seen. From 1920 to 1929 stocks more than quadrupled in value. Many investors became convinced that stocks were a sure thing and borrowed heavily to invest more money in the market.

But in 1929, the bubble burst and stocks started down an even more precipitous cliff. In 1932 and 1933, they hit bottom, down about 80% from their highs in the late 1920s. This had sharp effects on the economy. Demand for goods declined because people felt poor because of their losses in the stock market. New investment could not be financed through the sale of stock, because no one would buy the new stock.

But perhaps the most important effect was chaos in the banking system as banks tried to collect on loans made to stockmarket investors whose holdings were now worth little or nothing at all. Worse, many banks had themselves invested depositors' money in the stockmarket. When word spread that banks' assets contained huge uncollectable loans and almost worthless stock certificates, depositors rushed to withdraw their savings. Unable to raise fresh funds from the Federal Reserve System, banks began failing by the hundreds in 1932 and 1933.

By the inauguration of Franklin D. Roosevelt as president in March 1933, the banking system of the United States had largely ceased to function. Depositors had seen $140 billion disappear when their banks failed. Businesses could not get credit for inventory. Checks could not be used for payments because no one knew which checks were worthless and which were sound.

Roosevelt closed all the banks in the United States for three days - a "bank holiday." Some banks were then cautiously re-opened with strict limits on withdrawals. Eventually, confidence returned to the system and banks were able to perform their economic function again. To prevent similar disasters, the federal government set up the Federal Deposit Insurance Corporation, which eliminated the rationale for bank "runs" - to get one's money before the bank "runs out." Backed by the FDIC, the bank could fail and go out of business, but then the government would reimburse depositors. Another crucial mechanism insulated commercial banks from stock market panics by banning banks from investing depositors' money in stocks.