Vietnam Takes Small Step With Big Board

The bulls are running, sort of, on Ben Chuong Duong Street, where the world’s newest and smallest stock exchange has opened amid a flurry of excitement as Communist investors flirt with the potential rewards of capitalism.

Since the exchange’s much-delayed debut July 28, trading has been slow, but that’s fine with the government. The Vietnam index has risen every trading day, adding 17% to stand at 117.24.

Investors have become such enthusiastic big-board watchers they often show up at brokerage houses at 7:30 a.m., their children in tow, to put in buy orders before heading off to work.

“I haven’t invested yet, but I will soon,” Nguyen Thanh Tuong, 45, civil servant and nascent capitalist, said as he read a company prospectus at one brokerage.

“This isn’t like gambling, you know,” he added, with the naivete of a beginner. “Gambling involves risk. With stocks you can study the company and make an intelligent choice, and right now I’m sure these stocks are undervalued.”

But before foreigners rush over to Vietnam to invest, they should understand this is really a small market: Only four companies--an electrical manufacturer, a utility, a paper company and a warehouse-transforwarding firm--are listed. Except for the privately owned paper firm, they are joint state-private enterprises.

Prospective sellers are so reluctant to part with their stock that on the third day of trading, a paltry 300 shares changed hands. Demand has consistently overwhelmed supply.

One reason is a distinctly anti-capitalist wrinkle: Just 15 minutes before the opening of the first session, the government decreed that stocks cannot rise or fall by more than 2% a day.

The stated purpose is to avoid the wild gyrations of markets elsewhere, lest Vietnam’s fledgling investors be frightened off. The effect is snail-like pricing movements that so far have given would-be sellers little reason to sell, and buyers not much to buy.

Would-be foreign investors might also want to know that foreigners, unlike Vietnamese, are socked with exorbitant trading fees. They should also check the time: trading is limited to 9-11 a.m., three days a week.

On Monday, trading reached a record 35,500 shares, valued at about $49,000 (the prices of the four listed companies each hovers at just over $1 per share).

The government is under pressure to sell more of its shares in the listed companies to trigger more trading.

The opening of Vietnam’s first stock exchange came on the heels of a U.S.-Vietnam trade agreement that normalized commercial relations between the two former enemies. Taken together, the two events gave Vietnam and its sluggish economy a huge psychological boost, offering evidence that however leery Hanoi’s Communist leadership is of the perils inherent to capitalism, Vietnam is clearly on an unalterable journey toward what it calls a “socialist-oriented free market.”

“The most significant thing about Ho Chi Minh City’s stock market at this point is simply that it’s open,” said Peter Ryder, president of the American Chamber of Commerce in Hanoi. “Despite the obvious problems with the number of companies listed and restrictions on trading, this is an absolutely necessary step toward bringing in foreign capital.”

Jonathan Waugh, chief Vietnam representative for Jardine Fleming, a Hong Kong-based brokerage, said: “This is a market with potential. Given Vietnam’s population and geographical location, in 20 years you could see this as one of the top stock markets in Asia. There’s a lot of optimism in that statement, but the potential is there. This could be a phenomenal animal.”

The idea for a stock market has bounced around since 1992, three years after Vietnam began loosening its rigid state-run economy and adopting free-market reforms. But the pace of reform has been slow, spooking foreign investors, and Hanoi’s old guard Communist leadership has clearly felt challenged by the idea of a growing middle class making demands for more freedom and more economic opportunity.

In the party’s doctrine, making a profit is still considered an unsavory accomplishment and anyone with wealth is the target of suspicion.

But reformists persevered, and at the end of July, in an old French building that once housed a commercial bank, Vietnam belatedly opened the Securities Trading Center, a step China and Russia took more than a decade ago.

Officials said the process took eight years because they were busy planning and visiting other exchanges to ensure that their own provided stability, transparency and public confidence.

“I stood on the floor of the New York Stock Exchange on one visit and said to myself, ‘Vietnam’s won’t ever be this big, this active,’ ” said Tran Dac Sinh, deputy director of the Ho Chi Minh City exchange. “Still, in these first weeks, things have gone better than we dared hope, and I think more and more people will invest because of the possibility prices will go up.”

For now, the floor of the exchange is quiet and orderly, befitting a market where not a lot is going on. A dozen dealers, representing the city’s six licensed brokerages, sit at computers taking orders. A big digital board displays the latest prices and transactions.

Vietnam, with 77 million people who love to gamble and generally don’t trust banks, represents a huge potential market. Few Vietnamese even have checking accounts, and most keep their savings, in gold or cash, tucked under their beds or hidden in a closet.

By year’s end, State Securities Commission officials say at least 10 companies will be listed and the hours of trading lengthened. Vietnam has wholly or partly privatized over 500 state-owned companies in the past two years, and about 50 of them now meet the requirements for being listed on the exchange.