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Stock stabilising fund? Not so easy!
The idea about the establishment of the stock stabilising fund, which would allow for intervention in the stock market when necessary, was raised at a recent meeting between the State Securities Commission and investment funds and securities firms in HCM City. However, it seems it wouldn’t be easy to turn the idea into reality.
In fact, the idea was once mentioned by the Vietnam Association of Securities Business (VASB). The association found out that such a stock stabilising fund existed in the first period of the stock markets in South Korea, Taiwan and Hong Kong, and effectively helped stabilise those markets in difficult periods.
In principle, the fund could be used to intervene in the market if it fell continuously, thus helping restore investors’ confidence.
Nevertheless, Nguyen Thanh Ky, Secretary General of VASB, said that it would not be easy to set up such a fund in Vietnam. In the current conditions, the market’s members would have to make financial contributions to the fund in cash, not in bonds or shares. Moreover, it would be necessary to set up a specific mechanism for the fund’s operation, which clearly stipulated the function and responsibility of the management board and the profit dividing scheme.
Ky also mentioned another difficulty which could make the stock stabilising fund unfeasible. In other economies, speculation and activities to sway share prices rarely occur, while these are really a problem in Vietnam. The stock stabilising fund might not have positive effects on a market with problems and shortcomings.
Regarding the financial contribution scheme, Ky said that there are now 300 listed companies, more than 100 securities firms and investment fund management companies, which would have to make financial contributions to the fund. Moreover, the Government might consider using a part of the capital surplus it gets in the equitisation process to contribute to the fund. A part of the tax sums paid by securities investors could also be contributed to the fund.
Experts still have doubts about the feasibility of the stock stabilising fund, saying that such a fund would be just like the State Capital Investment Corporation (SCIC). The state’s powerful corporation stated several months ago it had joined the stock market to rescue the falling market. However, the corporation’s intervention has not been successful.
However, Ky does not think that the stock stabilising fund would act like SCIC. SCIC, as the state capital investment unit, has a lot of other important functions besides regulating the stock market. Meanwhile, the stock stabilising fund, once operational, would have only the function of supporting and stabilising the stock market.
In fact, SSC has been researching a suitable stock stabilising fund for Vietnam. The biggest challenge for SSC would be to set up regulations to manage the fund as a professional institution. It would also be necessary to keep strict control over the stock market in order to prevent activities of swaying securities prices.
And more importantly, the fund would need to be financially well-off to be operational. Meanwhile, the members of the market are incurring losses, and they have to manage somehow to survive the current difficult period, rather than thinking of making financial contributions to the stock stabilising fund.
VNN
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