Question 1. As a foreign investor, how can I participate in the Vietnamese stock market ?

Question 2: Calculation method of HNX Index at the close

Answer 1:

GUIDE ON TRADING SECURITIES TO FOREIGN INVESTORS

IN VIETNAM STOCK MARKET

Securities trading procedures:

1. Application for Securities trading code

Documents required:

Individual investor:

-         Application for registration of securities trading code

-         Information sheet about foreign individual investor (verified, signed and stamped with seal by the authorized agency in the home country or by the Consulate in Vietnam)

Institutional investor:

-         Application for registration of securities trading code

-         Information sheet (verified, signed and stamped with seal by the Notary Public or appropriate authorities in the home country)

-         Information on the delegated person of the institutional investor

-         The mandate of the institution’s Board of Directors appointing the delegated person as the representative of and contact person for the institution.

2. Application for opening Vietnamese Dong account and Securities Depository account

Documents required:

-         Application for opening Vietnamese Dong and Securities Depository account

-         Account opening contract

3. Transferring Foreign Currency from oversea to Viet Nam

Documents required: The instruction of remittance

4. Place orders to broker firms

Documents required: Order tickets (Sale, Purchase and Cancellation)

Source of capital used in the purchase of securities

Foreign investors are entitled to use following sources in foreign currency and in Vietnam Dong to purchase securities:

1. Foreign currency remitted from abroad into Vietnam in accordance with current provisions on foreign exchange control;
2. Foreign currency and Vietnam Dong on the foreign investors’ accounts, which are maintained at authorized banks;
3. Vietnam Dong in the accounts “capital contribution, share purchase” of foreign investors opened at commercial banks in Vietnam in accordance with the State Bank’s provisions on the foreign exchange control applicable to the capital contribution, share purchase by foreign investors in Vietnamese enterprises;
4. Distributed profits of foreign investors from their direct investment activities in Vietnam;
5. Receipt of foreign investors from the transfer, liquidation, dissolution of their direct investment activities in Vietnam in accordance with provisions of applicable laws;
6. Salaries, bonus and other legal incomes of foreign individuals in Vietnam in accordance with provisions of applicable laws;
7. Other sources if accepted by the State Bank.

5. Capital remittance into and out of Vietnam

1. If foreign investors wish to use their foreign currency, remitted from abroad or maintained on their accounts “foreign currency” at the authorized banks in Vietnam in accordance with provisions of applicable laws on foreign exchange control, for securities investment, they must transfer their foreign currency to the account “foreign currency demand deposits for special purposes” of securities company opened at the authorized bank in accordance with provisions in this Decision. They must sell foreign currency to the authorized bank to exchange for Vietnamese Dong for securities purchase.
2. After having fulfilled their tax obligations to the State of Vietnam in accordance with provisions of applicable laws, foreign investors shall be entitled to purchase foreign currency at authorized banks to remit overseas in accordance with provisions of applicable laws on foreign exchange control.

6. Opening of account “securities transactions in VND” of foreign investors at the Securities Company

1. Foreign investors shall open the account “securities transactions in VND” at a securities company for the sake of their securities purchase, sale activities at the Stock Exchange in accordance with provisions of applicable laws on securities and securities market.
2. The Securities Company shall manage separately the securities transaction deposits of each foreign investor and separate the securities transaction deposits of foreign investors and its own money. The whole deposits of foreign investors must be transferred into the account “VND deposits for special purposes” of the Securities Company opened at an authorized bank under provisions in Article 7 of this Decision. All transactions of money transfer, payment relating to the securities investment activities of the foreign investors shall be performed through this account at the authorized bank.

7. Opening and use of the account “VND demand deposits for special purposes” and the account “foreign currency demand deposits for special purposes” of the securities company at the authorized bank.

The securities company must open one (01) account “VND demand deposits for special purposes” and one (01) account “foreign currency demand deposits for special purposes” at an (01) authorized bank for the maintenance of the entire securities transaction deposits of foreign investors.

Tax regulations:

The capital gain tax:

By organization: pay income tax of whole transacted amount of 0.1%

By individual: It is free of tax

The ratio of foreign party participating in the Vietnam Stock Market

1.     For Shares:

Foreign organizations and individuals may hold at maximum 30% of the total currently circulated shares of one issuing organization.

2.     For Bonds:

No limitation ratio of holding bonds for foreign organizations and individuals.

Answer 2:

CALCULATION METHOD OF HNX INDEX AT THE CLOSE

(on Hanoi Securities Trading Center)

A stock market index is used to indicate the change of prices of the whole or a part of stocks traded on the market. Every stock market has one or more than one stock index, e.g. DJIA index, S&P500 index and NASDAQ-100 index in the U.S., DAX index in Germany, CAC index in France.

Currently, Hanoi Securities Trading Center announces HNX Index at the close and online HNX Index chart, which helps investors observe the change of all stocks during the trading session and choose the right time for investment.

The HaSTC-Index is calculated since the first day of official trading session of the market (14/7/2005) or the base day. This index shows the change in prices of all stocks traded on Hanoi Securities Trading Center. The index is calculated by comparing the current market capitalization to the market capitalization of all listed stocks on the base day. The value assigned to the base day index is 100.

The computation follows the procedure below:

                                     Market capitalization at present

HASTC-Index       =  ------------------------------------------------------  x100

                                     Market capitalization on the base day

Or:

                               å        P_it x Q_it 

HASTC-Index       =    ------------------------------- x 100

                                å       P_io x Q_it

Where:

P_it: Market value of stock i at present

Q_it: number of listed shares of stock i at present

P_io: Market value of stock i on the base day

i: 1,……,n

            During the trading session, HASTC-Index will be calculated after any stock transaction is executed. Therefore, when the executed price of any transaction changes, the HASTC-Index will change as well. The HASTC-Index shows the change of prices during the whole trading session, which forms the online HaSTC index chart. The HASTC-Index at the close is calculated basing on closing prices of stocks.

Example:

a. On the base day 14/7/2005 with the first trading session:

                                    1,924,590,120,000

=> HASTC-Index = ------------------------- x 100 =100

                                    1,924,590,120,000

Market capitalization on base day  = 1,924,590,120,000

b. At the close of Day 2’s session on 18/7/2005:

                                       1,914,670,306,000

=> HASTC-Index =     --------------------------- x 100 =99.48

                                       1,924,590,120,000

SOME SPECIAL CASES IN THE CHANGE OF HASTC INDEX

I. HaSTC Index at the close is calculated basing on closing prices of stocks.

The change in HaSTC Index is the difference between the index at the close of this session and that of the previous session. The change of the index depends on the change in closing prices of stocks compared to those in the previous session. 

During one session, the change of the index is the change of the current index compared to the index at the close of the previous session.

When the collar of stocks is +/-7%, the percentage change of the index (at the close or during the session) can be higher than +7% or less than -7%. In theory, the percentage change of HaSTC index can fall in the range from -19.16% to +23.1%.

The two following cases illustrate the two extremes of percentage change of HaSTC Index:

1.     Maximum increase of HaSTC Index: 23.1%

-                           The closing price of the stock the day before is floor price while the average price is ceiling price (because the volume executed at the close is very few in comparison with the total volume executed in the session).

-                           The trading price the next day is ceiling price.

Assumption:

-                           Reference price of day T is P

-                           Closing price of day T is 0.93xP

-                           Average price of day T is 1.07xP

-                           Reference price of day T+1 is 1.07xP

-                           Ceiling price of day T+1 is 1.07xP+0.07x1.07xP = 1.1449xP

-                            

Change in HaSTC index is calculated as follows:

                                      å       P_i(T+1) x Q_i(T+1)  - å          P_iT x Q_iT

% change = --------------------------------------------------- x 100%

                                    å   P_iT x Q_iT

          (1.1449xP₁xQ₁ + 1.1449xP₂xQ₂ + ... + 1.1449xP_nxQ_n) –

(0.93xP₁xQ₁ + 0.93xP₂xQ₂ +... + 0.93xP_nxQ_n)

= -----------------------------------------------------------------------------------------x 100%

     0.93xP₁xQ₁ + 0.93xP₂xQ₂ +... + 0.93xP_nxQ_n

         ( P₁xQ₁ + P₂xQ₂ + ... + P_nxQ_n ) x (1.1449 – 0.93)

= -----------------------------------------------------------------x 100%

( P₁xQ₁ + P₂xQ₂ + ... + P_nxQ_n ) x  0.93

=    23.1%

2.     Maximum decrease of HaSTC Index: -19.16 %

-                           The closing price of the stock the day before is ceiling price while the average price is floor price (because the volume executed at the close is very few in comparison with the total volume executed in the session).

-                           The trading price the next day is floor price.

Assumption:

-                           Reference price of day T is P

-                           Closing price of day T is 1.07xP

-                           Average price of day T is 0.93xP

-                           Reference price of day T+1 is 0.93xP

-                           Ceiling price of day T+1 is 0.93xP-0.07x0.93xP = 0.8649xP

-                           Index is calculated according to closing price.

Change in HaSTC index is calculated as follows:

                             å  P_i(T+1) x Q_i(T+1)  - å          P_iT x Q_iT

% of change          = ------------------------------------------- x 100%

                                    å   P_iT x Q_iT

                 (0.8649xP₁xQ₁ + 0.8649xP₂xQ₂ + ... + 0.8649xP_nxQ_n) –

(1.07xP₁xQ₁ + 1.07xP₂xQ₂ +... + 1.07xP_nxQ_n)

= ------------------------------------------------------------------------------------------------x 100%

              1.07xP₁xQ₁ + 1.07xP₂xQ₂ +... + 1.07xP_nxQ_n

         ( P₁xQ₁ + P₂xQ₂ + ... + P_nxQ_n ) x (0.8649 – 1.07)

= -----------------------------------------------------------------x 100%

( P₁xQ₁ + P₂xQ₂ + ... + P_nxQ_n ) x  1.07

=    -19.16%

II. Some other cases:

a. Stocks hit ceiling prices (+7%) during the session but the percentage change of Index does not increase correspondingly. This is because index at the close of the previous session is calculated according to closing prices of stocks and in this case, closing prices are ceiling prices. However, the average prices of stocks in previous session do not reach ceiling prices.

Assumption:

-                           Reference price of day T is P

-                           Closing price of day T is 1.07xP

-                           Average price of day T is 1.03xP

-                           Reference price of day T+1 is 1.03xP

-                           Ceiling price of day T+1 is 1.03xP+0.07x1.03xP = 1.1021xP

-                           Index is calculated according to closing price.

Change in HaSTC index is calculated as follows:

           å P_i(T+1) x Q_i(T+1)  - å          P_iT x Q_iT

% change     = ------------------------------------------- x 100%

                                    å   P_iT x Q_iT

(1.1021xP₁xQ₁ + 1.1021xP₂xQ₂ + ... + 1.1021xP_nxQ_n) –

(1.07xP₁xQ₁ +  1.07xP₂xQ₂ +... + 1.07xP_nxQ_n)

= ------------------------------------------------------------------------------------------------x 100%

              1.07xP₁xQ₁ + 1.07xP₂xQ₂ +... + 1.07xP_nxQ_n

        ( P₁xQ₁ + P₂xQ₂ + ... + P_nxQ_n ) x (1.1021 – 1.07)

= -----------------------------------------------------------------x 100%   = 3.00%

   ( P₁xQ₁ + P₂xQ₂ + ... + P_nxQ_n ) x  1.07

a. Stocks plunge floor prices (-7%) during the session but the percentage change of Index does not decrease correspondingly. This is because the index at the close of the previous session is calculated according to closing prices of stocks and in this case, closing prices are floor prices. However, the average prices of stocks in previous session do not reach floor prices.

Assumption:

-                           Reference price of day T is P

-                           Closing price of day T is 0.93xP

-                           Average price of day T is 0.98xP

-                           Reference price of day T+1 is 0.98xP

-                           Floor price of day T+1 is 0.98xP – 0.07x0.87xP = 0.9114xP

-                           Index is calculated according to closing price.

Change in HaSTC index is calculated as follows

          å  P_i(T+1) x Q_i(T+1)  - å          P_iT x Q_iT

% change     = ------------------------------------------- x 100%

                                å   P_iT x Q_iT

           (0.9114xP₁xQ₁ + 0.9114xP₂xQ₂ + ... + 0.9114xP_nxQ_n) –

(0.93xP₁xQ₁ + 0.93xP₂xQ₂ +... + 0.93xP_nxQ_n)

= ------------------------------------------------------------------------------------------x 100%

     0.93xP₁xQ₁ + 0.93xP₂xQ₂ +... + 0.93xP_nxQ_n

        ( P₁xQ₁ + P₂xQ₂ + ... + P_nxQ_n ) x (0.9114– 0.93)

= -----------------------------------------------------------------x 100%   = -2.00%

   ( P₁xQ₁ + P₂xQ₂ + ... + P_nxQ_n ) x  0.93