Entirely foreign-invested securities and fund management companies will be authorised to operate in Viet Nam effective January 12, creating challenges for Vietnamese firms but also opportunities for market to develop.
"They will probably lay their first bricks here in the country or choose to quickly develop by acquiring Vietnamese firms," said Viasa Investment Fund president Alan Phan.
Japanese investors were very interested in buying small domestic companies, agreed the head of investment research for Kim Eng Securities Co Michael Kokalari.
Kim Eng's analyst Phan Dung Khanh saw the full opening of the market as a major opportunity which would give the market access to different flows of capital.
"The price-to-earnings ratios of our securities market is about 10, and it's lower than other markets in the region, creating a lot of value investment opportunities for interested investors," said Khanh.
Vietnamese funds lag behind foreign competitors financially and technologically, admitted an officer of Vietfund Management after a visit to Indian Reliance Capital, but there will also be plenty of chances for domestic companies to learn from the incursion of foreign competitors. Kim Eng Securities Co, already 49-per-cent foreign-owned, was advised by its foreign partners to operate only in the fields of brokerage and consultation and to split risk management into a separate division, an operational strategy also deployed by such foreign-invested firms as SaigonBank Berjaya Securities, Phu Hung Securities and Kis Viet Nam Securities. Kim Eng general director Le Minh Tam said that the advice helped the firm survive the cataclysm of the market.
The question remains whether the Vietnamese market is alluring enough to international investors, as some bottle-necks in the economy have not yet been removed such as high inflation, high interest rates and slowing growth.
The capitalisation of the Vietnamese stock market was estimated at US$34 billion, which was unappealing pie to foreign entities, said HCM Securities Co's deputy director Trinh Hoai Giang.
"There won't be any major changes for the first several months after the market is fully opened," Giang said, adding that, with the emergence of e-commerce, a physical presence in the country wasn't necessary.
But Stock Exchange of Thailand chief executive Charamporn Jotikasthira said Viet Nam had great potential.
"It's because we are all in the ASEAN region, which is the ninth largest economic power in the world," Jotikasthira said.
Technology was a key factor, and development in the past four or five years has been rapid, he said.
"ASEAN has a few exchanges that are at the forefront in technology. By joining ASEAN, you automatically will be able to join in a similar platform."
Jotikasthira thought that the current downturn of the Vietnamese market was not serious. "I believe it is not because of the stock market but the economy itself," he said.
Having a stock market was important because it could become the only source of capital for companies in bad times when banks aren't lending. In the 1997 crisis, many companies went through bad times, and it turned out that the ability to raise funds on the stock market enable those companies to survive, he said.
"You have to pay for your capital, which means your share price may be low, but at least you survive."
One of the remaining issues for Viet Nam, said Kokalari, was the dominance of State-owned enterprises (SOEs) in the economy, crowding out the private sector, which now has a debt-to-GDP ratio of more than 120 per cent.
"Equitising SOEs has been the focus of the Government," said Government Office deputy director Pham Viet Muon. "However, the process was slowed in 2009-10 due to the lack of demand for shares in equitised SOEs."
Government efforts to curb inflation have worked but also slowed the economy, Kokalari said, noting that inventories were piling up and listed companies seeing no growth in earnings.
"Credit growth will be constrained next year as banks consolidate, but the consolidation of the system will be healthy for Viet Nam," he said.
Tran Bac Ha, chairman of the Bank for Investment and Development of Viet Nam (BIDV) – which will make its debut next year – said he was waiting on measures to address the difficulties of the securities and real estate markets to take effect.
"Many experienced investors may think the current decline is their very opportunity," Ha said. "However, regulators need to calm investor psychology first, since psychology is the main driver of the Vietnamese market."
In the long run, the country can still benefit from opening its doors to foreign investors.