World of Opportunity: Growth in Vietnam

== MarketsWiki Reports on Growth in Vietnam ==
By Jessica Titlebaum
Launched in January 2011, the Vietnam Commodity Exchange (VNX) began trading with help from the UK-based technology firm Patsystems, which is providing a matching front to back trading system. While it may not be the first exchange in Vietnam, it is the first futures exchange to operate with approval from Vietnam’s Trade and Industry Ministry. MarketsWiki researched past exchange efforts, the challenges within certain commodity markets and the government’s influence on the developing country to uncover investment opportunities in Vietnam.
 
Past Efforts to Launch a Commodities Exchange
 
The Vietnam Commodities Exchange is not the first exchange to try their hand at commodity trading. In 2009, a trading floor set up by the Vietnam Food Association replaced a traditional rice market. They initially launched with physical rice contracts and had plans to move into futures trading. 
 
Prior to the rice exchange efforts, there was a spot coffee exchange, Buon Ma That, that launched in 2007. 
 
According to Giang Tran, Managing Director at Tri-Viet Consulting, a boutique investment consulting company in Ho Chi Mihn City, Vietnam, many of the big coffee companies use forward and spot contracts when negotiating with Vietnamese firms but use futures products when dealing with international exchanges.
 
“Coffee exporters using futures contracts require 100 percent of the negotiated price up front,” she said. “This is because futures are still a new concept in Vietnam.”
 
She explained that one of the challenges in the Robusta Coffee markets is the significant fluctuation and inconsistency in product quality. This makes contracts hard to standardize for commodity trading. 
 
“Farmers go through ‘collectors’ (or brokers) to sell their crops and they have very tight relationships. Sometimes the collectors will provide loans to the farmers to help them grow their crops,” she said, emphasizing the need for transparency in the markets.
 
As Tran mentioned, futures are a somewhat new concept in Vietnam. The first entity to offer these contracts for hedging purposes was the Technical and Commercial Joint Stock Bank in 2005. They worked with Vietnamese importers and exporters to sign contracts with international trading centers like then-London International Financial Futures Exchange (LIFFE) and New York Board Trade.
 
VNX Launches New Era in Vietnamese Trading 
 
The Vietnamese markets are tightly regulated by the government, which has in the past limited the amount of petroleum trading licenses available to market participants and also banned the trading of gold in 2010. Barry White, the regional director of the Asia Pacific region for Patsystems, thinks the government involvement with VNX will be positive.
 
“This is a whole new venture for Vietnam and I think there will be government oversight,” said White. “I see that as something good because the government is fully behind the exchange and wants it to succeed.”
 
VNX began trading coffee, rice and rubber contracts with plans to introduce different commodity contracts in the future.
 
Jack Scoville is a soft commodities analyst at the Price Futures Group in Chicago. He said that the Vietnamese coffee market came out of nowhere.
 
“They weren’t producing any coffee 15 years ago and now they are the world’s second largest producer of Robusta Coffee,” he said.
 
He believes that as competing products become more profitable like rice and rubber, farmers in Vietnam will switch commodities in an effort to diversify their product offerings.
 
The Need For Education 
 
There are many factors that will influence the success of the Vietnamese markets, but one most pressing is the need for education. 
 
Afonso Viera is the managing director at Total Wealth Management in Ho Chi Mihn City, Vietnam. The company helps expatriates select and arrange savings and pension plans, including investments in commodity funds.
 
“People don’t know what exchange-traded funds (ETFs) are in Vietnam, but that won’t stop them from investing them,” he said.
 
Scoville had similar thoughts on the growth in Vietnam.
 
“If Vietnamese investors are given the educational tools to understand these markets and resources to manage price risks, Vietnam will continue to gain traction as a player in the commodities markets,” he said.
 
Acknowledging the need for trading information, Patsystems’ agreement with the Vietnam Commodity Exchange includes an educational element.
 
“We will work with the exchange to educate investors,” said White. “Our whole package includes consulting, and extends to explaining and educating the financial community about the futures markets.”
 
While Vietnam has seen some struggle in the past, it seems like the major players in the financial markets are gearing up for success. The past attempts have helped familiarize the community with futures concepts and the country has seen attractive growth in recent years.
 
“Vietnam has become a strategic part of Patsystems moving forward. With 85 million people, the country is commodity rich and resourceful,” said White. “We are seeing a lot of manufacturing moving from Mainland China to Vietnam at a rapid rate. We look forward to working and growing alongside the Vietnam Commodity Exchange.”
Category:MarketsWiki World of Opportunity