Solutions for risk management in securities investment at rubber finance company vietnam masters of business administration

MEIHO UNIVERSITY Graduate Institute of Business and Management MASTERS THESIS Solutions for Risk Management in Securities Investment at Rubber Finance Company Vietnam In partial fulfi

MEIHO UNIVERSITY Graduate Institute of Business and Management

MASTERS THESIS

Solutions for Risk Management in Securities Investment at Rubber Finance Company

Vietnam

In partial fulfillment of the requirements for the degree of

Masters of Business Administration

Advisor: Dr Shao-Hsi Chung Co-advisor: Dr Vo Phuoc Tan Graduate Student: Le Thanh Truong

December, 2010

ACKNOWLEDGMENTS

First of all, I would like to thank both of two schools: Ho Chi Minh City University

of Industry (HUI) in Vietnam and Meiho University(MU) in Taiwan offered me a good opportunity to take part this Master of Business Management program for the last two years

I deeply thank to my advisor, Doctor Shao Hsi Chung of Meiho University for valuable guidances and suggestions as well as continuous encouragement given me to complete this thesis I sincerely thank to Co-advisor, Professor Vo Phuoc Tan of Ho Chi Minh City University of Industry for valuabe instructions and advices given me during this research

Many thanks send to other Vietnamese professors and interviewees who anwer my quesions to give me ideas to finish the thesis.I have learnt a lot of other academic knowledges and skills besides my major in research

During the time I stayed in Taiwan I received a lot of helps from Professor Ron Chuen Yeh, chair person of Graduate Institute of Business and Management of Meiho University and I would like to give sincerely thanks to all Taiwanese professors, administrative officers and classmates at Meiho University for all helps and supports given me during time in Taiwan I have learnt a lot of thing from Taiwan, not only academic knowledges and skills but also Taiwanese cultural experience and Taiwanese people In the bottom of my heart I never forget the memories that I spent in Taiwan Finally, I deeply grateful send to my family members, my colleagues and partners for all their cares, willing to help and support me throughout the studying process of the MBA program

Solutions for Risk Management in Securities Investment at Rubber Finance Company

Vietnam ABSTRACT

Vietnamese stock market is one of the emerging market in Asia, which comprises

of Ho Chi Minh Securities Exchange (HOSE), Ha Noi Securities Trading Center (HASTC) and the OTC market HOSE has been in operation since July 2000 with only two listed companies with total market capitalization of about $22.5 million dollars, but there are nearly 600 listed companies with total market capitalization of more than $36 billion dollars HASTC has been in operation since March 2005

Rubber Finance Company VietNam (RFC) has operated since 1998 with main activities are coporate finance, personal financial, investmen products and other products RFC has begun to invest the porfolio of securities in Vietnamese stock market since 2003 and its operation has contributed a major part of company’s profit In the period of 2007-

2009, RFC’s securities trading operation suffered losses due to the global criris and lack

of risk management

Prediction and identifying risk issue in securities investment will help investors to manage effectively stock porfolio and reduce risks in securities trading

The project’s aims are to:

• Seek out solutions for securities investment activities in Vietnamese stock market, generally speaking and at FC, specifically speaking

• Identify and predict some kinds of the risks in Vietnamese stock market

• Utilize the risks as well as opportunities for investment

There are six financial experts who have extensive experiences in theory and facts about Vietnamese stock market will be interviewed with in-depth questions and open questions Questions used to ask experts based on literature reviews and suggestions of advisers before carrying out interviews The answers will be recorded by authors then analyzed, synthesized in response to the research question

The results of this research will help the stock investors on the Vietnamese stock market in generally speaking and RFC particularly speaking to have a overview about the

main risks affecting stock prices, bonds in order to reduce the losses when investing in Vietnamese stock market

Keywords: RFC is standed for Rubber Finance Company VietNam

Solutions for Risk Management in Securities Investment at Rubber Finance Company

Vietnam Contents

ACKNOWLEDGMENTS I ABSTRACT II Contents IV Tables V Figures VI

Chapter1 Introduction 1

1.1 Overview of Rubber Finance Company 1

1.2 Research Background and Research Motivation 4

1.3 Research Purpose 5

1.4 Research Object, Research Scope and Limitations 5

1.5 Research Procedure 6

Chapter 2 Literature Review 8

2.1 Overview of the Vietnamese Stock Market 8

2.2 Risk of Securities Investment 8

2.2.1 Definition of risk 8

2.2.2 Types of risks in stock investment 10

2.3 Methods to Manage the Risks in Stock Investment 11

2.4 Identify Current Risks in Vietnamese Stock Market 12

2.5 Identify Current Risks at Rubber Finance Company Vietnam 15

Chapter 3 Research Methodology 16

3.1 Research Method 16

3.2 In-depth Interview 16

3.2.1 Way of conducting interview 16

3.2.2 Question design 17

3.3 Interviewees 18

3.4 Reliability and Validity 18

3.5 Data Collection 18

3.6 Analysis Methods 19

Chapter 4 Research Results and Analysis 20

4.1 The Situation of Macroeconomic and Managing Vietnamese Stock Market 20

4.1.1 Exchange rates, inflation index, interest rates 20

4.1.2 Transparency of information on the stock market 21

4.1.3 The system laws about management and administration of the vietnamese stock market 23

4.1.4 Liquidity of the vietnamese stock market 24

4.2 The Investor’s Psychology and Improve Knowledge and Skills for Investors 25

4.2.1 The investor’s psychology 25

4.2.2 Improving knowledge and skills for investors 26

4.3 The Investment Methods for Risk Management 27

4.3.1 The portfolio investment method 27

4.3.2 Human resource foundation for securities investment 28

4.3.3 Using method of analysis and valuation of securities in an investment company 29 Chapter 5 Implications, Conclusions and Recommendations 31

5.1 Conclusions 31

5.1.1 Solutions to strengthen securities investment risk management at rubber finance company (RFC) 31

5.1.2 Recommendations to the vietnamese stock market 32

5.2 Discussion 37

References 39

Attachment 41

Tables

Table 3-1 Summary of Experts’s Biography 18

Figures

Figure 1-1 Rubber Finance Company Vietnam Building 2 Figure 1-2 Organization Chart of Rubber Finance Company 3 Figure 1-3 Chart price of Ho Chi Minh City Stock Exchange from January 2007 to June

2010 4 Figure 1-4 Research Procedure 7

Solutions for Risk Management in

Securities Investment at Rubber Finance

Company Vietnam Chapter1 Introduction

Chapter 1 includes: (1) Overview of Rubber Finance Company: support some informations about the company; (2) Research background and research motivation; (3) Research Purpose; (4) Research object, research scope and limitations; (5) Research procedure: steps of research

1.1 Overview of Rubber Finance Company

Rubber Finance Company is an organization of non-bank credit is established on November 20th, 1998 as a member unit and essential financial tool of the Vietnam Rubber Group (Capital of Vietnam Rubber Group is nearly $ 1 billion and has nearly 100 members.) Rubber Finance Company Viet Nam mainly serves the project development of the Viet Nam Rubber Group Over 12 years of development and growth of capital and annual turnover reached 178% per year

Business activities of the company are raising capital, business loans, investment projects, securities trading and other operations which are permitted by State Bank Rubber Finance Company Viet Nam focus on all resources to improve financial capacity, increase its capital, building executive management, focusing on investment, new technology, risk management, to strengthen cooperation with other credit organizations to overcome challenges when Vietnam integrates into the broad international finance

Figure 1-1 Rubber Finance Company Vietnam Building

Today, Rubber Finance Company has completed business management structure in the direction of professionalization and moderlization, and constantly improving service quality, expand business and investment in various business fields

With current capital is 2,000 billion VND (equivalent to 101 million USD) with total assets of 10,000 billion VND (equivalent to 503 million U.S dollars), then increasing in 2010 and subsequent next years Rubber Finance Company will develop multidisciplinary, including subsidiaries such as Insurance Company, Securities Company, Investment Company, etc

Figure 1-2 Organization Chart of Rubber Finance Company

BOARD OF MEMBER

BOARD OF SUPERVISORS

BOARD OF GENERAL MANAGER

GIA LAI BRANCH

BINH DUONG BRANCH

DONG NAI BRANCH

1.2 Research Background and Research Motivation

In recent years, the world economy in a unpredictable fluctuations, commodity prices have increased at very high, have decreased at depth Crude oil prices from a peak of 147 on July 11th, 2008 per barrel and dropped to 33.98 USD per barrel on February 12th, 2009 (World Bank) This influence not only to businesses, but also financial investers who get very big losses

Vietnam entered the stage of economic integration in the world, participating in organizations such as ASEAN economic organizations, participated in the World Trade Organization WTO, etc So the transformation of the world economy will affect the economy

of Vietnam Vietnamese stock market (stock market) is a fledgling stock market with many changings Stock Market transfer capital to the economy, just like a thermometer measuring

“health” of the economy

From 2007 to now the world economy during the crisis, Vietnamese stock market is very complex evolution, the VN Index is free-fall at 1170.7 points from the top on March 12th, 2007 down to the bottom 235.5 points on February 24th, 2009 ( Statistics of the Ho Chi Minh City Stock Exchange, 2009 )

Figure 1-3 Chart price of Ho Chi Minh City Stock Exchange from January 2007 to June 2010

Vietnam Rubber Finance Company (RFC) is a unit belong to the Viet Nam Rubber Group Stock trading is a business of the company and also greatly affected by the fluctuations of the stock market in particular periods of economic crisis the world recently Rubber Finance Company lost half the total capital invested in the stock market in 2008 and

methods, lack of forecast about macro economics, lack of necessary solutions to limit risks and promptly cut losses and so on

So, with research subjects “Solutions for risk management in securities investment at Rubber Finance Company Viet Nam", I hope the results of this research project will help the Rubber Finance Company, in risk identification and treatment measures the trends of the market, cutting losses where necessary, to understand about where risks come from, etc., essence practical use in the work of the author

1.3 Research Purpose

Purpose of this reseach is the author want to give out some solutions to control the risks, forecast the risks in stock investment activity at Vietnamese stock market This will increase the efficiency of stock investment of Rubber Finance Company at Vietnamese stock market And the research purpose was classified into three objectives:

• Seeking out good solutions for securities investment activities in Vietnamese stock Market, generally speaking and at Rubber Finance Company, specifically speaking

• Identify and predict some kinds of the risks in Vietnamese stock market

• Utilization of the risks as well as opportunities for investment

1.4 Research Object, Research Scope and Limitations

Research object is literature about the types of financial risks and risk management in securities investment activities on the securities market of Vietnam and the thesis focuses on risk management activities of securities investment at Rubber Finance Company through status of investment to give out solutions to limit risks in the securities investment activities for Financial Rubber Company in the current period

The author just focuses on listing and finding about the risks which directly influence

to stocks price of the listing companies and finance situation of Viet Nam The author don’t mention to the risks which indirectly such as cultural risk, information risk, etc

Besides, English is not mother language of the author, so in my thesis may be have a lot of structures are not right in English That is limitation of me

1.5 Research Procedure

Research procedure includes 9 Steps At first, the dilemmas of risk managements of investment activity, status of risk in Vietnamese stock market and risk problems at Rubber Finance Company were identified The purpose of research was set up with the aim of seeking out effectively managing solutions for such problems Then, a number of three associated research objectives were developed Next review all the paper, document, reports, websites, experts’ opinions, etc., concerned to obtain and develop involving ideas Later, research methods were identified as the in-depth interviews Questions used for interviewing were developed based on literature review Interviews were conducted after that and data gathered from such interview were analyzed to withdraw conclusion

Finally, the reseach’s result was presented in a report Figure 1-2 illustrates the

research process of this study

Figure 1-4 Research Procedure

Chapter 2 Literature Review

Chapter 2 includes: (1) Overview of the Vietnamese stock market: Give out overview

of the Vietnamese stock market; (2) Risk of securities investment: Give out definition of risk, types of risk in stock investment ; (3)Methods to manage the risks in stock investment; (4) Identify current risks in vietnamese stock market; (5) Identify current risks at Rubber Finance Company

2.1 Overview of the Vietnamese Stock Market

The Vietnamese Stock Market, formally known as the Securities Trading Centre (STC), located in Ho Chi Minh City was launched on July 28th, 2000 At the opening trading section, only two individual stocks with a total market capitalization of VND 444.000 billion (about USD 22,5 million).(State Stock Commision,2009)

Over 11 years of operation (June 17th, 2010) the number of listed companies and funds have increased to 236 at Ho Chi Minh Stock Exchange (HOSE) with a total market capitalization of VND 559.534 billion (about USD 29,15 billion) (Stock Market News No

111 dated June 06th, 2010 of HOSE) and the number of listed companies have increased to

299 companies with a total market capitalization of VND 132.718 billion (about USD 6,91 billion) (Stock Market New No 1116 dated June 17th, 2010 of Ha Noi Stock Exchange) The total capitalization of the Vietnames stock market is of USD 36,06 billion equal 41,64% Gross Domestic Products of Viet Nam (Viet Nam General Statistics, 2010)

The Vietnamese Stock Market has a step of developing very fast and powerfull

2.2 Risk of Securities Investment

2.2.1 Definition of risk

So far, there is no uniform definition of risk, the different opinions, different authors give different definitions of risk The definition of risk is very diversified, abundant, but in brief, we can divide definition of risk into two major opinions: traditional opinion and modern opinion

Risk considered the unfortunately, damage, loss, danger, and so on The Vietnamese dictionaries of Hanoi Dictionaries Center (1995) defined the risk is not unlucky, not good, unexpected happens Risk as defined in the Webter dictionary (2009) is "a threat, the risk of damage or injury" a passive word, that is being put before the hazard or risk So, it means

badly To professor Lan (1998) the risk (mean risk) is the unfortunate According to the Oxford Dictionary (2009) "Risk is the possibility of danger or pain, or damage, and so on."

In business, Doctor Huyen (2009) definited that the risk is the loss of property or loss

of actual profits compared to expected profit or the risk is the unexpected problems occuring

in production processes, business enterprises, impact on the survival and development of enterprises”, etc

In economics, the concept of risk is broader and has a big difference Eugene and Joel (2009) definite the risk is the possibility of unexpected events will happen In short, the traditional way to think the risk is the damage, loss, or risk factors associated with danger, difficulty or uncertainty can happen to people (Van, 2009)

Interpretation of a more comprehensive about risk and risks in the book "Risk and Insurance magagement" authors William, Arthur, Michael, and Smith (2009) wrote: "Risk is the latent fluctuation of results Risk can appear in almost every human activity When there are risks, we can not predict results accurately The presence of risk caused uncertainty Risks incurred whenever an action or result in loss of ability to be not predictable "

Thus, the modern opinion, the risk is uncertainty can be measured The risk has two sides: positive and negative The risks not only cause damage, loss, dangers and so on, but also the risk that may bring opportunities to people and business-man, investers If we study the risk carefully, identify the risk, measure the risk and manage the risk, people not only find these precautions, avoid pure risks, limit the damage caused by risks, but also can "turn the situation", the variable's success, turning defeat into victory, turning challenges into opportunities to bring good results in the future

In conclusion to this research project, the authors will choose to define risk as the modern opinion as follows:

The risk in securities investment is defined as the possibility of unexpected results, in other words, the received actual profit in the future may be different from original plan (Linh, 2003) So, not only risk means bad, but also means good (as received income bigger than expected income) Risk contains both dangers and opportunities, so it reflects a clear tradeoff between risk and profit Certainty (or variation) of the interest rate is higher when the investment risk is lower and vice versa When investors buy a property in the hope it will be profitable during the time they hold these assets Real income will be different than expected earnings, and that is the source of risks.When the investor invests in treasury bonds, they get interest as expected rate, meaning they do not invest in risky assets Conversely, when they

invest in shares of a company, they expect a profit of 15%, their actual income may be higher

or lower

Have to remember that expected income and deviations that we identify in practice is calculated basing on past earnings than future earnings Assume that when using the fluctuation in the past to calculate, It means they are the best indicator of future income distribution When these assumptions are violated, especially in cases where the character of property changes over time, (tools of capital such as stock, etc.,) past data is not a good method of determining risk

2.2.2 Types of risks in stock investment

Risk in the stock market is everywhere Investing in the stock market is fraught with worry, for good reason If you lose half of your investment, you must double your return to just breakeven Warren Buffett, considered by many to be the world’s greatest investor, states his first rule of investing is “do not lose money.” Unfortunately, the risk in the stock market

of losing your money is always a possibility However, without taking some risk there is no reward Therefore, successful investors employ stock market risk management strategies to minimize their losses Managing risk in stock market starts with identifying the type of risk and taking action to mitigate the impact of the risk on your investment portfolio.(Hans Wagner, 2009)

There are two types of risk, a feature derived from their own company (no system risk), and different kind from the whole market (system risk) (Linh, 2009) Specific risk affects one

or some investments, while system risk affects all investments This is a very important thing

in the process of forecasting risks

2.2.2.1 System risks

The risks affect to most securities are being circulated on the market at the same time Cause of system risk is often the system of economic agents outside the control of the issuer, such as political, legal changes, inflation or deflation of the economy, the adverse fluctuations

of exchange rates or market interest rates, a recession or economic crisis, etc The types of system risks typically include: political risks, legal risks, market risks, interest rate, exchange rate, purchasing power risk (Huyen, 2007)

2.2.2.2 Non-system risks

The risks come from internal of a company or an industry that is not associated with the entire market Influence of non system risk only impacts to the company, a sector or some kinds of securities Non system risks typically include business risk, financial risk, risk of management, etc (Linh, 2009)

2.3 Methods to Manage the Risks in Stock Investment

To make efficiently in secutities investment, reduce risk, we need to carry out the investment and securities investment management as the following steps:

(1) Identify and forecast the risks

According to the concept of "comprehensive risk management" of Kloman, Haimes and other authors (Van, 2009) states that the risk management is a process to approach risk scientifically, comprehensive and systematic identification, control, prevent and minimize the damage, loss, the adverse effects of risks

(2) Analysis to choose good stocks which are suitable for economic situation

Stock markets are following the economy so depending on the time that investors should select the appropriate type of stocks Such as for a normal economic situation, we select growth companies and growth stocks for investment, however if the economy is in crisis period or recession period, we chose defense companies (types of companies usually have business risks and financial risks are low) and defensive stocks for investment Chosing right stocks which are suitable for economic situation from time to time will reduce the risks involved in securities investment (Linh, 2009)

(3) Following portfolio of securities investment method

The investment in securities typically start with the analysis and selection of securities portfolio that can provide a high profitability rate, while minimizing investment risk may have The choice of a specific securities portfolio is subject to the securities investment strategy of each individual investor The diversifying the investment portfolio can reduce risk Eugene & Joel (2009)

Another proven risk management strategy for owning stocks is to diversify your portfolio across several different companies, sectors, and asset classes By owning several different stocks, you reduce the impact of a loss in any one company Moreover, if the stocks you own are from several different industry sectors you

(ETFs) offer an excellent way to add diversity to your portfolio as they hold shares of companies based on an index The index can be for the whole market, or any segment

of the market When using ETFs, be sure there is sufficient liquidity (plenty of shares trading) or you will create another unwanted risk.(Hans Wagner,2009)

(4) Turn risks into opportunities to get success

2.4 Identify Current Risks in Vietnamese Stock Market

(1) Risk caused by macroeconomic

Doctor Linh (2009) said that the fluctuations of the stock market are linked closely to the macro economy For example, the economic crisis, investing in the stock market is likely to reverse the losses and growth economy we can get higher profits on the stock market

There are a lot of macro economic-factors in the Vietnamese stock market cause the risks to the investment activities as follows:

o Risk caused by market (Market risk) Market risk appears on economy because of the reaction of investors to market phenomena.The first decline on the market that causes fear for investors and they will try to withdraw capital out of the market This chain reaction increases in sales and price of stocks will fall lower than the base value of stocks (Phong, 2009)

o Interest risk Interest rate makes increasing in input costs of firms, expected interest rate increasing would lead to reduce the value of shares, bonds and vice versa (Linh, 2009)

Between market interest rates and securities prices are inversely proportional relationship When market interest rates rise, investors tend to sell securities for money to put in banks lead to price of securities will go down and vice versa.In addition to directly effects of securities price, interest rates also influence indirectly the common stock price When interest rates rise as stock traders will reduce loan from bank to buy stocks so it takes price of stocks go down Many investment companies operate primarily in securities with big loans when the interest rate increasing also makes the cost of capital increases (Phong, 2009)

o Inflation risk Inflation makes input costs of firms increasing, increasing the nominal interest rate therefore it affects to price of securities Inflation risk directly affects to business operations of enterprises that we invest in, so the profit results will be affected , etc, and affect to values of companies and investment

in stocks of the companies (Linh, 2009)

o Legal risk Since Vietnam officially develops following the market economy in early 1990s, the government gradually perfects the legal framework for securities activities and stock market Securities activities, investment funds, securities market is regulated in the legislation enacted in 1998 In 2006, with booming of the stock market and WTO accession of Vietnam, many legal documents on the stock market has been promulgated as Securities Law, the guiding decree and activity regulations, etc However, the risks relating to legal elements are existed such as compliance with the commitments when Vietnam joins the WTO, the tax provisions for investors in the financial sector, banking and securities, the accounting and fund management, policies to encourage investment in financial sector and securities sector can not be strong enough to attract greater amounts of idle capital (VFM, 2009)

o Risk of exchange rate

At the present,the issue of exchange rate in Vietnam operates very complicatedly Once investors recognize that the currency could be dumped in the future, then investors will decide not to invest in securities or will replace the securities by foreign currency, because the securities is money, if the value

of cash go down, the stock price will be reduced (Linh, 2009)

o Risk of budget deficit Budget deficit problem in Vietnam today also makes the stock market

up and down according to the report on the budget deficit was declared Any deficit budget must always be covered by the government loans If the value of the government loans increases, it leads to increase the benchmark interest rate Government loans are so much will impede loans and individual investments because of raising interest rates and reducing the business This leads to reduce in business activities of companies and will affect to the price of stocks

(2) Risk caused by weak liquidity of Vietnamese stock market

Low liquidity of the securities that the investor are holding can be difficult and even impossible to sell, or can not transferred in order to recover investments Unfortunately for securities investors, when for some reason or another, they have to purchase the securities of a company which is in not good financial condition and unhealthy prospects, as well as the ability consumer products firm inefficiency (Phong,2009)

Even ownership of preferred shares that are not transferred during the specified period (usually 3-5 years) may also cause risk for investors, especially when they need money to pay interest bank loans or to withdraw capital to invest elsewhere (Phong, 2009)

(3) Risk caused by not obvious information

It is rare in business which success or failure of investors associate with diversity, systematic, comprehensive, and accurate update of information related as securities investment Who get better the information will easily win and minimize the risks In other words, risk in the securities investment was derived from the depth and quality of information that investors need to provide a basis to make investment decisions Risks are lurking everywhere and investors will pay the price sooner or later, expensive or cheap, if not understand the information accurately, completely and timely concerning the investment environment, nature and the situation of the stock market (Phong,2009)

A financial statement or prospectus has not been audited, verified by independent organizations, professional, reputable and highly professional degree; a message to slow or garbled, incorrect operation business of the listed company, the legal environment for investors and others on the same playing field, or simply a matter of weather or disease, etc, that could cause incalculable damage to stock investors (Phong, 2009)

(4) Risk caused by shock market

Securities investors, especially small investors, can bear more risk associated to shocks in the domestic market or foreign cause by:

o Shocks from overseas markets as the Asian financial crisis in 1997 is a typical example

o In addition, investors are subject to risks related to government policies,

for strategy investors, officers and employees of the company's initial stock); the changes in exchange rate policy, inflation, the percentage holding of shares in the companies of strategic investors, the foreign investors; export-import policy, exclusively or other proprietary bilateral relations, multilateral, etc (Phong, 2009)

(5) Risk caused by invester’s psychology

Stock investors, especially small investors, can suffer multiple risks associated with the psychology of investors on the Vietnqm stock market as:

o The trend to buy or sell securities following crowded psychology which breaks down the normal movement rules of the market

o The speculation, false rumors, information and self-interference polish, blowing prices or even fraud and collusion with the organization of professional investors enough to cause market volatility rose profiteering Finally, the biggest risk and also the source of all the risks in stock investment

is risky cause by the mistakes of ignorance, lack of skills of comprehension, analysis, and slow market reaction, accuracy of the investors themselves The very shorten opportunities and illusion of securities trading are gone We can not simply buying securities and waiting for prices going up one-way and we sell out when we need money (Phong, 2009)

2.5 Identify Current Risks at Rubber Finance Company Vietnam

(1) Lack of investment process

(2) Skip the basic method of analysis and valuation of securities

(3) Buy and Sell decisions don’t through investment concil to re-appraise

(4) The allocation of capital to invest in other types of securities is not reasonable (5) Team analysis is weak about professional in investment decisions

Chapter 3 Research Methodology

Chapter 3 includes: (1) Research method; (2) In-depth interview: showing how to conduct interview; (3) Research’s interviewees: describing a brief introduction of experts interviewed; (4) Data collection; (5) Reliability and validity; and (6) Analysis method: Presenting how to analyze the data gathered from in-depth interviews

3.1 Research Method

The author used qualitative methods to complete the thesis Rubber Finance Company

is a case study By studying the theories of risks and risk management in the securities investment activities in the world combined with the research status of risk management at Rubber Finance company, and survey opinion of financial experts to get their opinions about forecasting the risk and risk management,etc The author would like to offer some solutions

to improve and increase effectively risk management in securities investment activities at Rubber Finance Company where the author are working and responsible for the operation of securities investment

3.2 In-depth Interview

In-depth interview was chosen as the research tool for this study because furthermore information could be gathered to clarify the research questions The previously mentioned solutions were quite general Interviewees are good at investment career and control the risks

in Vietnamese stock market So, in-depth interview was considered as a suitable way to show

up details of corresponding solutions with more reality

3.2.1 Way of conducting interview

In-depth interviews were conducted to find the answers for the initially developed research objectives with participants of six experts, in their offices and at a both-sides-agreed schedule The scheduled time for each interview was one and half hours Howevers, facts were varied Some interviews were run less than one and half hours while the others interview needed more than one and half hours Besides the formal interviews, other informal interviews were also conducted in order to either correct the responses or gather more data concerned At the beginning, the purpose of the research was introduced, and then, it was time for Question and Anwer A requirement for recording all the responses was suggested For the accuracy of the response, all anwers were carefully examined Likewise, besides the

major questions, which closely tied to the research objective, other some minor questions were also developed to clarify the responses

4 How is about the liquidity of the Vietnamese stock market at the moment?

Questions relate to investor’s psychology

1 Do you agree that the stock investers follow the rumours, internal news, the broker’s advices to give out their investment decisions?

2 How to increase the knowledges and skills for Vietnamese investors to create a stable and sustainable stock market?

Questions relate to investment methods for risk management

1 How do you think when people saying the portfolio investment method is the good way for risk management in stock market?

2 Do you think that the investment decisions in an investment company launched by a team of experts are better than an individual?

3 Do you agree that the method of analysis and valuation of securities in an investment company are very important 2 factors in securities risk management?

3.3 Interviewees

Table 3-1 Summary of Experts’s Biography

3.4 Reliability and Validity

As mentioned, the interviewees were experts who were many experiences in activities

of stock investment and control the risk in Vietnamese stock market And they were officials

of State Stock Commision who were handling Vietnamese stock market operation One of expert was profesor of University who was teaching about Stock Market Therefore, their responses were both reliable and valid to the research

3.5 Data Collection

All responses were immediately recorded in writing in the interviews At the end of each interview, the whole records were reviewed to correct mistakes, for instance, the missing words of misunderstanding.Sometime, several further opinions were added at the end

of the interviews too The responses with technical and professional terms were paid careful attention Not all interview questions were replied because the response still relied on the distinguished experience of every expert Therefore, some questions did not have corresponding response

Expert Gender Working

Years

Age Working Position Major in

Study

A Male 25 years 49 Chairman of the board

cum CEO of Saigon Securities Inc

Finance and Banking

Bussiness Management Department,The National Univerity of Ho Chi Minh City

Doctor of Bussiness Management

Enterprise Fund

Master of Finance and Banking

Company Viet Nam

MBA

E Female 10 years 35 Chief of Forex department

of Techcombank Viet Nam

MBA from Wharton School of Bussiness

F Male 20 years 46 Vice president of State

Stock Commision

Finance and Banking

3.6 Analysis Methods

Responses were first grouped by individual questions In each group of response, similar responses (which appeared as synonymous words of phrases) were coded, synthesized, and then rearranged in sub-topics Then, only one significant opinion was remained as representative and the others with overlapping meaning were removed Such opinions either were kept as origin or re-wrote without changing the main meaning In addition to the ten major questions, several minor questions were also made in order to either clarify the response or getting further ones Those associating responses were also added to the previous major responses

Chapter 4 Research Results and Analysis

Chapter 4 displays the analysis of inteview data, which were divided into three groups: (1) Questions concerning about the situation of macroeconomic and managing Vietnamese

stock market; (2) Questions related to listed companies and investor’s psychology; (3)

Questions related to the solutions to limit risks in the securities investment activities

4.1 The Situation of Macroeconomic and Managing Vietnamese Stock Market

4.1.1 Exchange rates, inflation index, interest rates

About this matter, Mr A said:

“The government poorly controls the macroeconomic situation in Vietnam Typically, the initially proposed inflation index is estimated 7% but it is 9.58% in November, 2010 Foreign currency is tense; the exchange rate in black market is higher than interbank rate; this proves there are deficiencies in foreign currency and excess of import in economy The government manages the exchange rate losing 10% in comparison with that of the beginning of year.”

Agreed with Mr.A, Mr B said:

“The government does not control exchange rate, inflation index and interest rate well Mostly, the State handles these problems instantaneously and shortly The government has no provident vision on these macroeconomic factors.”

Mr C added further information:

“The government controls the macroeconomic situation poorly All macro parameters such as exchange rates, inflation index and interest rates are always passive The government handles them shortly Basic interest rate in Vietnam, for example, the Governor of the State Bank gives on monthly basis, commercial banks usually remain passive in their loan making and capital mobilization Another problem is exchange rate that has very high difference between the official interbank market and the black market Today’s difference is 10% The reason for this is that a person who wants to buy USD for traveling, payment for import contracts, and so on is very difficult to buy it at commercial banks, he/she must buy it in the black market, where always has strong response based on the law of supply and demand.”

Mr D replied:

“Generally, the macroeconomic situation is unstable in 2010 The government does not control the exchange rates, inflation index and interest rates well Depreciation of Vietnamese dong, the two-figure inflation index and high increase

in interest rate negatively affect Vietnamese economy, especially the stock market.”

Mrs.E, besides the similar opinion, showed more detailed:

“The government controls the macroeconomic situation not well Typically, the inflation index exceeds 2 figures (it is projected 7-8% by the government); other criteria such as exchange rates also change unusually, the difference between the interbank and black market rate is 10% The interest rate is also very high; there are now banks mobilizing capital with 17% per year This indicates the uncertainty of macroeconomic management of the government.”

Mr F, although had some “positive” statement, also had similar opinions with the above experts:

“The government now gradually controls the macroeconomic situation much well However, the government should give long-term vision about macro policies such as laws on securities, interest rate, and inflation index, so that investors will feel secure about investment in the Vietnamese stock market The stock market is

of truth, if there is belief, it will be stable and developed On the other hand, Vietnamese Dong is depreciated in comparison with USD Almost other currencies in the region and over the world raise price against USD but Vietnamese dong is devalued at 10%, because our country is a great excess of import and balance of payments is unsecured The government should manage so that people can trust in domestic currency.”

4.1.2 Transparency of information on the stock market

To this problem, Mr.A indicated that:

“It is unobvious Financial statements of listing companies provide investors are mostly unspecific, and there is not any person being responsible for them.”

Mr B besides the similar opinion, showed more detailed:

“It is unobvious Even it is difficult to search for information about a company

in Internet Some Web sites of listing companies do not post their financial statements, but company’s brief introduction information Furthermore, stock market administration agencies such as the State Securities Commission of

timely Much information which is spread for a long time is provided officially by market administrators Thus, it is very difficult and risky to make investment decisions in companies without enough information.”

Mr.C, although had some “positive” statement, also had similar opinions with the

above experts:

“The information which provides to investors issued by listing companies is at average level because they only provide information as requested by state management agencies, this means the information is for countermeasure Companies have no highest consciences and responsibilities for providing information to shareholders and investors.”

Mr D gave another opinion:

“Listing companies provide their information to investors well and fully However, the Vietnamese stock market fluctuates irregularly Constant waves of shares often occur, fluctuation of securities price is very irrational without basing

on business operations of listing companies Infiltrative transactions of internal shareholders still take place regularly.”

Mrs E, although had some “positive” statements, also had similar opinions with the above experts:

“Listing companies are now more aware of providing their information to investors However, their quality of financial statements is not appreciated They only give quarterly income statements with cursory notes to financial statements.”

Mr F also confirmed this opinion by saying:

“Information of listing companies is now mainly given as lawful requirement and the Vietnam Securities Depository Enterprises don’t initiatively provide valuable news to investors for their reference and more exact assessment Most internal news and information affecting share price are known in advance by internal shareholders or their relatives, and they use these news to buy and sell securities to seek profits This is inequitable among investors The competent agencies must strictly treat such cases

4.1.3 The system laws about management and administration of the vietnamese stock market

To this problem, Mr A indicated that:

“There are systems of laws but no people’s administration capacity and their capacity is slow.”

According to Mr B:

“The answer is sure of not strength Until now the stock market has been operating for 10 years, but laws on stock market do not change so much Many problems are given such as prevention from price-making, speculation, and

“groups of great investors specializing in price-making” but the systems of laws

on securities lack prevention methods The State also has no really strong measures to control operations of the stock market The speculation is now very high in the market.”

Mr C gave another opinion:

“The systems of laws about management and administration of the stock market are strong enough to control and operate the Vietnamese stock market However, we should more better infringement sanctions which should not be too unspecific.”

Agreed with the “positive” view of Mr C, Mr D said:

“There are the systems of laws on securities and the stock market and enough for safe and effective operation of the market.”

However, he also added:

“However, supervision and management systems of securities transaction are ineffective The law on securities has shortcomings and is now adjusting step by step in accordance with the development of stock market.”

Mrs E gave the similar “positive” opinion:

“The systems of laws on securities and stock market are strong enough; and laws about management of the stock market is gradually perfecting.”

Agreed with Mrs E, Mr F said:

“The systems of laws on securities are gradually to be in conformity with the market and enough strength to control the market’s operations.”

“The law enforcement agencies must more strictly handle violation in operations of the stock market such as share price-making, sale and purchase on internal news basis, etc.”

4.1.4 Liquidity of the Vietnamese stock market

To this problem, Mr A said:

“The liquidity of the Vietnamese stock market is now low.”

Agreed with Mr A, Mr B said:

“The liquidity of the Vietnamese stock market is not good at the moment The market often happens in one way Everyone all buys without sale when the market increases, and struggles for sale when the market decreases, thus, the liquidity of the market is low.”

Mr C, although had some “positive” statement, also had similar opinions with

above experts:

“The liquidity of the Vietnamese stock market is average at the moment Some types of shares called Blue chip have good liquidity However, the liquidity of the whole market is unequal for securities codes In general, companies with business prosperity, obvious information and market capitalization of over USD 100 million have rather good liquidity, but small securities have poor liquidity.”

Mr D gave another opinion:

“The Vietnamese stock market is increasing in scale and quality of listing companies The liquidity of securities is improved significantly for each year.”

Agreed with Mr D, Mrs E said:

“The liquidity of the Vietnamese stock market is at average level Several transactions have relatively good liquidity; the whole market trades approximately USD 500 million per day.”

However, She also thought that:

“The market is sometimes very active but sometimes is too dull; nobody sells securities Besides, few listing companies have good quality; therefore, they don’t attract the capital resources from corporate investors and foreign organizations This also influences the market liquidity.”

According to Mr F: