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Vietnam forsakes real economy for stock trading

Section: Daily Dispatches

Stock Market Mania
Grips Vietnamese

By Amy Kazmin
Financial Times, London
Tuesday, February 20, 2007

A manager at a foreign-run hotel and part-time MBA student, Nguyen Dung, 26, had never owned shares in a company until recently. But last week, impressed by the spectacular rise of Vietnam's stock market, he invested $650 in an informal pool with 30 of his MBA classmates.

The MBA students have agreed to pool information and tips and invest in a murky -- and unregulated -- informal market for shares in partially-privatised state-owned companies. To Mr. Dung, what to any astute investor in the developed world would seem a risky bet, looks like a sure thing.

"In Vietnam, the stock market is changing day by day," he says. "If anyone has the correct information, they can get easy money."

After watching the formal stock market's main index soar by 249 per cent over the last 13 months, Vietnam's emerging middle class is in the throws of stock market mania and students, civil servants and state enterprise managers with cash to spare are all rushing to buy shares and dreaming of windfall profits.

The recent bull run on the formal exchange, with 107 listed companies, has been propelled partly by foreign investors, eager for exposure to one of Asia's fastest-growing economies.

But for Vietnamese investors there is even greater euphoria in the market for the unlisted shares in hundreds of partially-privatised former state enterprises that may, or may not, list on the formal exchange one day. A recent auction put a $170m value on a copper cable company that reported $1.1m in profits last year.

"It's a frenzy," says Jonathan Pincus, the U.N.'s chief economist in Hanoi. "All the chatter in Hanoi is about people investing in the market. I don't know if anyone knows what these companies are worth, but they are buying the paper."

As tales emerge of local investors buying shares in defunct banks, Vietnamese authorities are fretting that many citizens -- rather than getting rich -- may be poised to see their savings evaporate. Yet officials are also struggling to cool the speculative fervour without precipitating a market collapse.

"The government is obviously concerned that the stock market prices are increasing continuously and many observers are of the view that it is fairly much overvalued," said Il Houng Lee, the International Monetary Fund's resident representative in Hanoi. "This could lead to problems later on if there is a rapid adjustment in the prices, given that there are many local investors involved."

Rules on bank lending for stock market purchases have tightened. Officials are also considering whether to impose a rule for foreign investors to keep their capital in Vietnam for one year.

Until recently Vietnamese tended to put what savings they had into more traditional assets such as gold or real estate. But in the past year the number of trading accounts in the Vietnamese stock market has almost quadrupled from 32,000 to about 120,000.

Brokerages are mushrooming, with 56 now licensed, up from 16 early last year. All kinds of companies are trying to get a bite of what they see as a lucrative business with one state garment maker, Vinatex, recently declaring it would open a stock-broking arm.

Vietnamese companies in an array of sectors appear to be using surplus cash to punt on the market instead of investing in their core activities. Sriyan Pietersz, head of research at JPMorgan, sees the dangers of this: "Apart from the fact that earnings could be volatile, you run the risk of under-investing in your business ... because management is too busy rooting around on its Bloomberg screen."

Authorities are also struggling to get stock market-obsessed civil servants to focus on their day jobs.

The central bank recently issued an edict prohibiting staff from making stock investments during working hours. But Tra Le, an executive vice-president at the stock exchange, says it is an uphill struggle. "Commercial bank staff are kind of lukewarm on their jobs and very interested in something else. They are just watching the screen and watching the price performance of shares, which is reducing the productivity of the banks."

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