Bursting Stockbroker Bubble in Vietnam

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Hanoi stock exchangeMaybank Kim Eng Securities announced on October 17that it has received approval to become the first 100-per cent foreign owned securities company in Vietnam.

This comes on the back of the wave of Vietnamese stockbrokers that have just reported losses in their quarterly results including Viet Dragon Securities, Orient Securities and indeed Maybank Kim Eng Securities itself.

While losses may have narrowed since 2012, the continued cash bleed is no surprise. Vietnam has too many stockbrokers competing for the same business in a small market. On the surface, it may seem that Vietnam is not an attractive market to focus on for a foreign player. However, we believe that bursting of the locally owned securities brokerage bubble is actually opening up a window for foreign entrants to position themselves in the Vietnamese market for capturing future market share in institutional brokerage.

Small market

With total stock market capitalisation short of $50 billion and average daily turnover currently running at $50 million, the market is tiny by any international comparison. The stock market bubble in 2007 spurred a rush to set up securities brokerage firm by banks, diversified corporations and anyone with the right connections to secure a license. At one stage there were over 100 different securities brokerages in the market. Limited liquidity and deal activity has resulted in the numbers dwindling and many are throwing in their towels or having their operations suspended by the State Securities Commission.

As a result of the bursting bubble, a number of securities companies have suspended their operations. To date, this includes Golden Bridge, Trang An and SME Securities. Seeing the ‘writing on the wall’ others have voluntarily left the market including Sao Viet, Indochina and Capital Securities. Finally, due to low capital positions, some brokers have already been forced to close by the regulators including Hanoi Securities, Truong Son and Delta. The cleaning up is not over.

Fees driven by retail clients

Most securities brokers focus on stock brokerage. There are only a few brokers that can carry out bond trading. In fact 78 per cent of the bond trading is dominated by only two brokers; Military Bank Securities and Bao Viet Securities. In share brokerage, the top 10 brokers now hold 65 per cent of the market.

Brokerage fees both for institutional and for retail clients are low in Vietnam. Retail client business is the key driver of income for share brokerage in the Vietnamese market. The securities brokers derive the income from retail customers from the spread on customers’ margin account. Being able to mobilise these funds from retail customers is key to making money in securities brokerage but at the same time means that a number of brokers have been burdened with bad debts from customers.

As a result of the downturn in the market, the regulation has become more restrictive on margin lending with requirements on liquidity, absolute value of the share price, minimum equity requirements, a reduction in the leverage ratio and a proposed cap on the interest rate to 150 per cent of the central bank prime rate. This clampdown has been putting a squeeze on this source of income for brokers. Securities companies related to banks have also been able to leverage their operations through offering share financing for other activities. This financing has been extended to clients with large stock portfolios who are ‘asset heavy’ and use their share positions as sources of liquidity.

Window of opportunity in servicing institutional clients

Few of the brokers in Vietnam have a foreign institutional platform which can feed foreign investors with quality research. Ho Chi Minh Securities (HSC), Saigon Securities (SSI) and Viet Capital Securities (VCSC) are some of the few brokers that are able to service foreign investors with research of appropriate quality. Most institutional brokerage platforms have been built on the back of having a profitable retail operation.

We expect as the market becomes deeper and more liquid institutional brokerage will become more important as a revenue driver. Given the limited depth of the offering, taking market share from the incumbents does in all reality not seem difficult for an international brokerage company. Eventually, the enhanced professionalism and integration of the market into the global system of capital flows requires that some of these players can eventually become 100% or at least majority owned by foreign acquirers. Maybank is a first mover. We expect similar moves over the coming years.

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Reading Time: 3 minutes

Maybank Kim Eng Securities announced on October 17that it has received approval to become the first 100-per cent foreign owned securities company in Vietnam.

Reading Time: 3 minutes

Hanoi stock exchangeMaybank Kim Eng Securities announced on October 17that it has received approval to become the first 100-per cent foreign owned securities company in Vietnam.

This comes on the back of the wave of Vietnamese stockbrokers that have just reported losses in their quarterly results including Viet Dragon Securities, Orient Securities and indeed Maybank Kim Eng Securities itself.

While losses may have narrowed since 2012, the continued cash bleed is no surprise. Vietnam has too many stockbrokers competing for the same business in a small market. On the surface, it may seem that Vietnam is not an attractive market to focus on for a foreign player. However, we believe that bursting of the locally owned securities brokerage bubble is actually opening up a window for foreign entrants to position themselves in the Vietnamese market for capturing future market share in institutional brokerage.

Small market

With total stock market capitalisation short of $50 billion and average daily turnover currently running at $50 million, the market is tiny by any international comparison. The stock market bubble in 2007 spurred a rush to set up securities brokerage firm by banks, diversified corporations and anyone with the right connections to secure a license. At one stage there were over 100 different securities brokerages in the market. Limited liquidity and deal activity has resulted in the numbers dwindling and many are throwing in their towels or having their operations suspended by the State Securities Commission.

As a result of the bursting bubble, a number of securities companies have suspended their operations. To date, this includes Golden Bridge, Trang An and SME Securities. Seeing the ‘writing on the wall’ others have voluntarily left the market including Sao Viet, Indochina and Capital Securities. Finally, due to low capital positions, some brokers have already been forced to close by the regulators including Hanoi Securities, Truong Son and Delta. The cleaning up is not over.

Fees driven by retail clients

Most securities brokers focus on stock brokerage. There are only a few brokers that can carry out bond trading. In fact 78 per cent of the bond trading is dominated by only two brokers; Military Bank Securities and Bao Viet Securities. In share brokerage, the top 10 brokers now hold 65 per cent of the market.

Brokerage fees both for institutional and for retail clients are low in Vietnam. Retail client business is the key driver of income for share brokerage in the Vietnamese market. The securities brokers derive the income from retail customers from the spread on customers’ margin account. Being able to mobilise these funds from retail customers is key to making money in securities brokerage but at the same time means that a number of brokers have been burdened with bad debts from customers.

As a result of the downturn in the market, the regulation has become more restrictive on margin lending with requirements on liquidity, absolute value of the share price, minimum equity requirements, a reduction in the leverage ratio and a proposed cap on the interest rate to 150 per cent of the central bank prime rate. This clampdown has been putting a squeeze on this source of income for brokers. Securities companies related to banks have also been able to leverage their operations through offering share financing for other activities. This financing has been extended to clients with large stock portfolios who are ‘asset heavy’ and use their share positions as sources of liquidity.

Window of opportunity in servicing institutional clients

Few of the brokers in Vietnam have a foreign institutional platform which can feed foreign investors with quality research. Ho Chi Minh Securities (HSC), Saigon Securities (SSI) and Viet Capital Securities (VCSC) are some of the few brokers that are able to service foreign investors with research of appropriate quality. Most institutional brokerage platforms have been built on the back of having a profitable retail operation.

We expect as the market becomes deeper and more liquid institutional brokerage will become more important as a revenue driver. Given the limited depth of the offering, taking market share from the incumbents does in all reality not seem difficult for an international brokerage company. Eventually, the enhanced professionalism and integration of the market into the global system of capital flows requires that some of these players can eventually become 100% or at least majority owned by foreign acquirers. Maybank is a first mover. We expect similar moves over the coming years.

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