Greed drives bourse to the brink

Vietnam Investment Review; March 5, 2007 -- Article Excerpt. Dr Vuong Quan Hoang, a research scientist at CEB-University of Brussels and managing director of InvestVietnam,. Inc. shares his ideas on the ongoing explosion of Vietnam's stock market. The thirst for a fast profit and groundless greed of many investors have blown up the stock market bubble and together with the absence of market makers, these factors are creating implicit market risks.

In 2006, the VN-Index rose nearly 150 per cent and during January, it increased by 36 per cent. What do you think of these gigantic rises?

From a psychological aspect, there are three reasons behind the market's recent explosion. First, Vietnamese in general really want to make money fast, easily feel satisfied with what they have earned and always seek easier profits. Second, business opportunities in the economy are not so easy to find, especially when one pursues it by themselves. Third, the transaction capacity of the market has yet to be brought into full play and the main reason for this is the periodical order matching system and the bottle-neck issue on the Ho Chi Minh City's Exchange. These factors result in a deviatory supply-demand relationship, strongly affecting stock price fluctuations.

What is the stock market's real risk rate now?

The risk is large. The most important function of the market is to create high liquidity for stocks. However, in Vietnam, that liquidity remains very low. The market can reach a total value, per trading session of VNDI trillion but in comparison with the market's entire scale (nearly VND30 trillion) or with the real demand for transactions of investors, the liquidity of Vietnam's stock market is quite worrisome. In addition, given the absence of market makers, the market has a special feature. When stock prices are high, almost none sell and when they are low, there are few buyers. This places the market in a situation when most transactions are unilateral and in terms of mathematical statistics, any big jump contains risk.

Unexpected market developments have led bourse management to continuously post warnings. But, many view such warnings as unnecessary, explaining that the market has its own rules?

Though the Vietnamese economy's annual growth rate from 7.5-8.0 per cent is high compared to the world average, there is no point if stocks keep rising 30 per cent monthly. When the market was small with total capitalisation of just 1-2 per cent of GDP, it was not worrisome. Now, the market exceeds 20 per cent of GDP, the market's growth has created illusory prosperity, which goes with panic. Panic is the single feature that distinguishes the stock market from normal commodities markets. If the commodities fall in price, they can be bought though they are not really necessary. They can be given away or replace old ones. By contrast, when financial products fall in price, many are ready to dump them though they used to believe these products were good. The panic psychology is very dangerous to Vietnam's stock market because of its low liquidity and absence of market makers.

The State Bank has warned commercial banks not to pour money into the stock market, but this phenomenon has yet to be curbed. This phenomenon creates a communicating 'vessels effect' between bank deposits, the money that depositors expect to be safe with fixed income generation, and the investment channel with unpredicted risks. As an economist, I feel very concerned when the market has grown excessively regardless of the authorities' warnings.

One reason often quoted to assure investors of the recent sharp rises in stocks price is that Vietnamese businesses have been sold at a low price (almost all of the listing businesses are equitised state-owned enterprises) and at present they are being reevaluated. What do you think of the quality of Vietnamese businesses in general?

If quality is measured in scale terms, this type of quality went up strongly last year. However, if the business quality is defined by such standards as business strategy, sectoral planning, core values and strategic vision, it is very doubtful. I have met with leaders of many big businesses in Vietnam and they are all worried about businesses' future in the context of the global game (the WTO)....

(*Read full article at: http://goliath.ecnext.com/coms2/gi_0199-6405279/Greed-drives-bourse-to-the.html)

Taking stock

Vietnam Investment Review; June 18, 2001 -- Article Excerpt. The past 11 months have been more a roller coaster ride than gentle learning curve for the nation's stock market pioneers. Vuong Quan Hoang analyses the quirks and deviations of the nascent bourse

FOUNDED on July 20, 2000, the Ho Chi Minh City Securities Trading Centre (HSTC) has not been in existence long enough to allow scientific models to function, either empirically or theoretically.

However, 11 months has been sufficient time for thousands of people to invest their money.

The establishment of the HSTC itself was considered the first success and the beginning of operations with two firms listed on the bourse's boards the second. Although there are currently only five listed companies, trading does happen.

The HSTC is governed by a set of regulations designed to avoid collapse and to ensure the smooth functioning of the market. Generally, these regulations work, with occasional exceptions.

One example is the temporary trading interruption of Transimex (TMS). Trading only resumed following re-assessment of the reference price. Also, some manipulation was believed to have taken place, with orders having been written then cancelled deliberately.

Following that incident, the State Securities Commission (SSC) decided to ban the discarding of orders written by market participants, a move that still makes investors uncomfortable. Another problem is the lack, or misrepresentation, of information.

Most recently, a "warning" message issued by the SSC in an attempt to ease the `irrational exuberance' that had built towards Hapaco's shares failed to produce the desired effect.

The qualitative statement is that the fledgling market is worth exploring, not because it has produced returns for some investors, but because it contains some interesting properties.

Based on observations of the HSTC over its first 113 trading session, the main trend has been for stock price to move by the maximum allowed fluctuation of 2 per cent.

In most trading sessions, share prices have hit the ceiling, but they have also sometimes dropped to the floor.

Graphical analysis of these movements shows that the market is caught in a "liquidity trap".

When traders expect the price to go up, they tend to place orders at the upper limit. But of course, knowing that the value of the shares they are holding are set to rise, shareholders are unlikely to want to sell them, leading to very low transaction volume, both in terms of the number of shares traded and their monetary value. In a non-parametric manner, the stock runs in this case are positive for many consecutive sessions.

When the direction turns, the "trap" again springs, only this time in reverse, with shareholders finding it extremely difficult to sell.

Again, few shares are traded. The only exception to this situation is right at the point where the direction starts to turn, and when this happens, large transaction volumes are recorded for the session.

The graphs below show a remarkable similarity between the five listed companies' share price movements. But this close correlation should not be so. For the time being, there is nothing normal in the distribution of stock returns on the HSTC.

When assuming normality,...

(* Read full article at: http://goliath.ecnext.com/coms2/gi_0199-3806704/Taking-stock.html)

Nurturing indirect foreign investment

Vietnam Investment Review; April 16, 2001 (more than 10 years ago) -- Vietnam could boost its coffers with much indirect foreign investment via the emerging stock market and growing domestic private sector. Reality? It rather depends on whether some recent thinktank suggestions become policy.

SOME possibilities for attracting strong inflows of indirect foreign investment can be seen in two drafts produced by the Ministry of Planning and Investment.

The first suggests some foreign-invested enterprises (FIEs) be allowed to list on the stock exchange, with the first firms going public on a trial basis. This would hopefully lead to plenty of extra capital being injected into these firms.

The second draft identifies 40 types of domestic private firms, including services companies, which should be permitted to sell up to 30 per cent of themselves to foreign investors.

For FIEs wanting to list, the MPI recommends that their capital base must remain at least 30-per cent foreign. Otherwise, says the ministry, the firms would have to operate under the Enterprise Law, which was activated last year to cover purely Vietnamese firms.

Jolly good idea too

Reacting to the MPI's draft identification of 40 domestic private-firm types which could go partly foreign, an attorney, Pham Nghiem Xuan Bac, was very upbeat,

Bac, managing Partner of Vision & Associates, said: "It is a positive move to boost foreign investment in Vietnam, as well as development of the private sector here.

"A strong private sector will absorb labour redundancies which may be the result of the acceleration of the equitisation and restructuring process and which may create difficult social issues ... [though it would promote the economy's efficient cy and competitiveness]."

Officials of the MPI were quick to outline how the firms would have to "keylock" stake sales to foreign entities at a maximum 30 per cent, because foreign investors must not be allowed to dominate the country's financial and economic structure.

On this point, Minister of Planning and Investment Tran Xuan Gia said: "When we talk about the ratio between foreign capital and domestic investment in Vietnam's financial structure, it is naturally a little complicated."

Presently, domestic investment sources, both state and non-state, account for 60 per cent of investment in the country.

Official development assistance (ODA) and FDI account for the rest (around $16 billion has been accumulated from these sources in the past five years).

For the coming five-year period, said Gia, it would be tough to make ODA and FDI cover one third of the $60 billion of investment being targetted.

A misleading notion?

Asked whether focusing much more on indirect foreign investment was appropriate, Vuong Quan Hoang, a financial expert for the World Bank's International Financial Corporation, said: "Clearly this notion of categorising between direct and indirect foreign investment is vague and misleading.

"Investment is investment, with the money being spent and associated with some risks. One should not care whether it is `direct' or `indirect.'"

Added Hoang: "The boosting of investment via the stock market depends on whether such a market can really generate substantial investment prospects for investors at reasonable risk.

"In addition, all investments will not come across easily. Investment approaches will require more open...

(Full article content at: http://goliath.ecnext.com/coms2/gi_0199-3792940/Nurturing-indirect-foreign-investment.html)

Vietnam Sees Second-Quarter Growth

June 29, 2011 (Wall Street Journal; June 29, 2011) -- HANOI—Vietnam's economic growth sped up slightly in the second quarter, but remained restrained amid government efforts to rebalance the economy and rein in inflation.

Gross domestic product expanded 5.7% year-to-year in the second quarter of 2011, the General Statistics Office said in a statement. The economy grew 5.6% in the first half of the year.

The second-quarter growth was slightly faster than the 5.4% increase in the January-March period, thanks to higher industrial and construction output, but significantly slower than the 7.3% expansion posted in the final quarter of 2010. Vietnam's economy expanded 6.8% last year.

"I think after the government admitted itself that [full-year] growth can be around 6%, it's probably signaling that it's putting stability in front of growth," said Santitarn Sathirathai, an economist with Credit Suisse, who had expected the second-quarter growth figure to be 5.8%.

In February, Vietnam's government announced a major policy switch as what was once one of the most promising developing economies spun out of control, resulting in rising inflation, an entrenched trade deficit and a battered local currency—which has been devalued several times in the past year and a half.

Authorities have pledged to keep credit growth below 20% this year, cap the budget deficit at 5% of GDP, boost domestic production and curb the trade deficit. The central bank has raised benchmark interest rates several times this year.

The government this month cut its 2011 GDP target to 6% growth from 6.5%, and lifted its inflation forecast to 15% from 11.75%. It was the second time this year the government lowered its growth forecast and raised its inflation outlook.

The consumer price index rose 20.8% year-to-year in June, up from May's 19.8%, with some economists predicting that inflation won't peak until August or September.

Though the government has taken steps to tighten lending in the first half, Vietnam will continue to face high inflation in the third quarter, and more anti-inflationary efforts should be taken in coming months, says economist Vuong Quan Hoang of Hanoi-based DHVP Research & Consultancy.

"As June CPI rose 20.82% on year and it's thought that it will rise further in July; it's very difficult for the government to pull it back to 15% or even below 10% any time soon," Mr. Hoang said.

--Leigh Murray in Bangkok contributed to this article.

Write to Nguyen Pham Muoi at phammuoi.nguyen@dowjones.com

Russia Stamps Out Political Opposition

July 15, 2011 (Ariel Cohen, National Interest) - Russia has emasculated the country’s center-right. Steps have been taken to split the liberal vote in anticipation of the Duma elections in December. “Right Cause,” a Kremlin-supported quasi-opposition founded in 2008 under the aegis of Anatoly Chubais, the architect of Russia’s controversial privatization, elected an oligarch as their new party leader. Mikhail Prokhorov, Russia’s third-richest person (worth $18 billion, according to Forbes), the owner of the NBA’s New Jersey Nets, a playboy and allegedly Russia’s most eligible bachelor, became the party’s new boss.

Prokhorov made headlines when, in a brilliant move, he got out of the metals business on the eve of the 2009 economic recession. His name was in lights once again when the French police briefly detained him for bringing a planeload of “party girls” from Moscow to the fancy ski resort of Courchevel. Today, he is launching the Ё-car, the first Russian hybrid vehicle aimed at the mass market. If successful, it may make Prokhorov even richer; if not, it would be an expensive flop.

As much as Prokhorov and “Right Cause” want to be known as pro-business and pro-reform, he has already ruled out identifying his party as a part of the political opposition. No wonder. Anyone who has to do business with the government all the time—and with a government headed by Vladimir Putin—certainly doesn’t want to get on the wrong side of the establishment.

In the end, then, he and his party support the status quo. In fact, Arkady Dvorkovich, President Medvedev’s economic advisor, tweeted recently that Prokhorov’s views were “close to [his].” Any real opposition gets shafted when rulers are propping up friendly political forces. And now there is the creation of the “Popular Front” to support Prime Minister Vladimir Putin’s return to presidency and to boost the ruling party, United Russia. Needless to say, it is “business as usual.”

Anyone who doubts this should look at the fate of PARNAS, the Party of People’s Freedom. The Russian Justice Ministry just banned PARNAS, a center-right opposition party, from participating in the elections. Led by well-known democratic politicians, including former Prime Minister Mikhail Kasyanov, former Deputy Prime Minister Boris Nemtsov, former Duma Vice Chairman Vladimir Ryzhkov and former Deputy Minister of Energy Vladimir Milov, it is neither violent nor extremist.

Secretary of State Hillary Clinton released a statement on the State Department’s website that "it is hard to understand how this decision…is consistent with Russia's international commitments and recent statements by Russia's own leaders."

Why is the secretary surprised with this sort of behavior after her administration gave Russia carte blanche to crack down on the remnants of democracy, and what is she planning to do about it?

The decision to deny registration is illegal on its face. Russian authorities said that the party ranks contained some “dead souls” (some names necessary for registration could not be confirmed), yet these numbered no more than 70 out of more than 46,000 people who signed the registration petition. Furthermore, authorities claimed that the party did not allow for a “rotation of leadership,” required under election law, which, PARNAS says, is patently false.

PARNAS is one of nine opposition parties that the Central Electoral Commission and the Justice Ministry have denied access to Russia’s electorate in the last four years. And opposition politicians also lack access to national TV channels. The European Court of Human Rights has cited Russia for its handling of opposition movements, including the forced dissolution of another opposition party in 2007.

While President Medvedev and the tame “Right Cause” are calling for greater democracy, the government denies millions of Russians the right to vote.

As SAIS scholar Donald Jensen and I noted recently, the Obama administration bet on the wrong horse when it engaged Medvedev as the lead contact in its “reset” with Russia. This was a failure to realistically assess who are we dealing with, and who is making key decisions. The United States should take note, as the administration’s “reset” policy demonstrates its futility once again.

* Vebimo's question: Is this the corporate Russia?

Beijing through Rose-Colored Glasses: Why Democracy Cannot Tame China

July 13, 2011 (by Harry Harding, National Interest) - There is an increasing drumbeat for pushing a democratic project in China to fend off its inevitable aggressive authoritarian ambitions. There is little doubt that China will wish to become a preeminent power in its own hemisphere. But the argument that creating a pluralistic, democratic system in China will sideline a coming clash between Washington and Beijing is overly optimistic. Certainly it is true that China and the United States will be competitors, even rivals, not only because one is an established power and the other a rising power, but also because their political systems embody very different ideologies. American concepts of democracy pose an existential threat to the Communist regime; Successful Chinese growth under an authoritarian system is a threat to American leadership and exceptionalism.

Recently, Aaron Friedberg masterfully combined, in a way that is quite unusual, realist and non-realist components in an argument whose crescendo is that “it is likely that a more democratic China would ultimately create a more peaceful, less war-prone environment in Asia.” It would also, of course, simultaneously remove the threat to the American sense of ideological supremacy. Thus “in the long run, the United States can learn to live with a democratic China as the dominant power in East Asia, much as Great Britain came to accept America as the preponderant power in the Western Hemisphere.” But, “until that day, Washington and Beijing are going to remain locked in an increasingly intense struggle for mastery in Asia.”

This is an argument that has been made before. It’s one of the rosy forecasts that Jim Mann has called a “soothing scenario.” And it is fraught with uncertainty. It is, in fact, highly unlikely that China will become a truly democratic political system, and moreover a democratizing Middle Kingdom may well be overwhelmed by the nationalistic sentiments that are part of China’s contemporary political culture, and that the present Communist government has deliberately cultivated. Even if we arbitrarily and optimistically assign a 50 percent probability to each of these outcomes, over the next decade or so, that means that the chances of a Chinese regime that is both democratic and cooperative would be no more than 25 percent. Those are not the best of odds. Nor are these odds of true democratization within our ability to change.

Given this, it is far more important to ask the fundamental question of how the United States can manage China’s rise through its own behavior. Which leads us to some of the policy implications that those others who cling to the democratization-as-solution mantra might be better served by drawing.

Rather than simply hoping for democratization, I would look toward creating greater economic interdependence between China, the United States and the rest of Asia. The Communist party is dependent on economic growth for legitimacy—and that growth presently depends very much on exports, and exports depend very much on foreign investment. The policy of economic rebalancing that Beijing is attempting may change those ratios somewhat, making the Chinese economy increasingly dependent on domestic consumption and less reliant on exports, and exports more contingent on Chinese firms and less on foreign invested ones. But as the economy matures, there will also be increasing interest in outbound Chinese foreign investment, and that will increase Beijing’s interdependence with the rest of the world—albeit in a different form. This creates an environment in which American can promote interdependence based on reciprocity. Actively welcome Chinese investment in the United States, as long as comparable opportunities are available for American (and other foreign) firms in China. Chinese investment in an advanced economy like that of the United States will mean that Chinese goods sold stateside will be increasingly produced by American—not Chinese—workers. Concomitantly, it will give those Chinese firms with investments in the United States a stake in stable relations between Washington and Beijing.

Second, continue to welcome China’s growing presence within existing international institutions—like the IMF, the World Bank and the United Nations—and its efforts to create new organizations to meet unfilled needs—like the SCO, the ASEAN+3 and the East Asian Summit—as long as the United States is also given an appropriate role. There is a huge difference between a rising power that wants more say within the existing international system and a rising power that wants to promote fundamental changes to that system. It will be key to ensure that those institutions—both old and new—are robust enough to simultaneously impose some constraints on Chinese behavior and reassure Beijing that its rise is being accommodated.

Above all, the United States needs to maintain a favorable balance of power in the region. China may wish to dominate its region the way that the United States historically dominated the Americas, or in the way that China itself dominated parts (but only parts) of Asia in the Ming and Qing dynasties. But those seventeenth- and nineteenth-century visions will be hard to achieve given twenty-first-century realities. Whatever Beijing’s ambitions may be, securing a dominant role in contemporary Asia will be extremely difficult. It is a very crowded region, in which at least four other major powers (Russia, Japan, India and the U.S) are located or have major interests, and it is home to an increasingly strong regional community (ASEAN) and to several important middle powers (notably Pakistan, Bangladesh, Australia and South Korea). Some scholars say that a dominant China—and a system in which others in the region defer to Beijing and China exercises a limited form of hegemony—is a “natural” outcome in the region. So far, however, few Asian powers seem to actually prefer such an outcome. (They probably didn’t prefer it in the past, either, but they had no choice.) There is a strong trend toward multipolarity in this diverse and vibrant area, and a unipolar Asia would represent an enormous failure of power and will on the part of the other regional actors.

The role of the United States will be particularly important in determining the area’s future. Despite the potential and clear preference for multipolarity, Japan is stagnant, Russia is focused more on Europe and its “near-abroad” in Eurasia, ASEAN still struggles to forge consensuses on foreign policy and India’s future rate of economic growth remains uncertain. Washington will be key if the aim is avoid a bandwagoning scenario in which one frightened Asian country after another sides with China. Revitalizing the American economy, refocusing more American military and diplomatic resources on the Asia-Pacific region, and restoring the attractiveness of American economic and political models will be far more effective ways of promoting an open and stable Asia than simply hoping China will democratize.

Yes, China is rising, and rising powers have posed challenges in the past. But to me, the most important variable in determining the outcome is not the democratization of China but the revitalization of the United States.

Mystery Mortgage Economics

July 17, 2011 (by Paul Krugman, NYT) -

As most of our attention is focused on the debt-ceiling crisis, another issue is coming to a head: whether prosecutors will rush to let banks off the hook for mortgage abuses in return for a modest settlement, without having done anything like a complete investigation.

I’ll leave the legal issues to others; what puzzles me is the economic argument being made for a rush to settlement:

Indeed, halting the long slide in home prices has emerged as the government’s primary goal in its settlement talks with lenders. Following the robo-signing scandal last autumn, many major servicers halted home seizures. But in the months since then, more homeowners have fallen into distress amid high unemployment and a weak economy, adding to the inventories of potential foreclosures to come.

Help me out here: why would accelerating the foreclosure process halt the slide in home prices?
I mean, let’s think supply and demand here. When you evict a family from a home, you’re adding that home to the supply of homes for sale. Yes, some evicted families will go out in search of new housing — but almost by definition, they won’t be able to buy or rent as much house as the one they were living in.

So this looks to me like an increase in housing supply not matched by an equal increase in demand. Shouldn’t this push prices down, not up?

OK, there’s supposed to be mortgage modification along with the deal. But first of all, if that’s a concern, why not make an aggressive push to use the more than $40 billion still sitting, unused, in the HAMP program? And why not wait a few months to collect more evidence, and thereby get a better deal? It’s not as if the housing slump is going away any time soon.

As far as I can tell, officials are essentially relying on a metaphor — purge the system, and health will return.

But I see no reason to believe that this metaphor is useful.