ETFs hoped to bring new lease on life to stock market ...

Vietnam has turned the green light on exchange traded funds (ETF), going to promulgate a circular guiding the establishment of the funds.

ETF have been developing rapidly in foreign stock markets over the last 10 years. However, in Vietnam, this kind of fund is just coming out, 10 years after its first operation day.

Vietnamese watchdog agencies needed a long period to design the legal framework for such funds and set up the framework when the time is ripe. It is really a necessary cautiousness. In developed economies, the management agencies also took very cautious steps before allowing ETF to appear on the market.

Experts believe that ETF would be a very attractive product to investors, and that ETF have bigger advantages than other types of fund for four reasons.

First, the management cost is low.

Second, the transaction mechanism is flexible and convenient, which also means the high liquidity. Investors can make transactions at any time during the day like other normal shares. Meanwhile, the certificates of open funds can only be traded on some certain days.

Third, this type of fund allows using the mobilized capital more effectively. Unlike closed-end and opened-end funds, which always have to keep certain amounts of cash, ETF can put all the mobilized capital into investment.

Fourth, ETF have the higher transparency than the other two types of funds, since the funds? investment portfolios are made public, thus allowing investors to react quickly to the market changes.

Yuta Seki from the Nomura Capital Market Research Institute said on Thoi bao Kinh te Vietnam that though he still has not made any detailed calculation about the impacts of ETF on the Vietnamese market, he still believes that ETF would bring added value and help develop the stock market in the future.

Especially, ETF is believed to be very useful in the dealing with the banks? bad debts and settling the cross-ownership problem in the banking system ? the big headaches to Vietnam for now.

However, he also said that ETF should not be considered as a ?magic rod,? and that it is necessary to keep very cautious in managing the market.

Nguyen Thanh Long, Director of the Fund Management Department under the State Securities Commission (SSC), in an interview given to Dau tu chung khoan, said the existence of ETF would increase the attractiveness of the stock market.

Long said investors, especially foreign investors have high demand for making investment in Vietnamese stocks via ETF. As such, when Vietnam allows ETF to operate, it would create more opportunities to attract foreign capital flow to Vietnam.

Under the current regulations, the total shares of a Vietnamese company foreign investors hold must not be higher than 49 percent of the total stakes.

However, with ETF, when foreign investors buy fund certificates, they do not have to bear the regulation on the ceiling foreign ownership ratio. As such, this indirectly gives more ?room? to foreign investors in Vietnamese companies.

However, Long stressed that Vietnam will still be able to control the foreign ownership ratios in listed companies.

When asked about the establishment of domestic ETF, Long said domestic ETF would well compete with foreign funds, because domestic funds can enjoy a more open mechanism.

However, Long still cannot say for sure if the first domestic ETF can be established right in 2013, saying that this would depend on the market conditions.

Dung has revealed that SSC is now considering allowing to set up REIT (Real estate investment Trust) as well.

VietNamNet

Source: http://www.saigonmoney.com/2012/09/27/etfs-hoped-to-bring-new-lease-on-life-to-stock-marke/

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