There is just one point I'd like to mention here supporting the idea of a semi-free market. There is obviously no free market in Vietnam, at least in the stock exchange. If you own a stock by buying it, it is called 'long'. People buy thing at a discount and sell them at premium. That's where you can make profit by expecting that price goes up. Short sell works vice versa. So if you expect/ bet price go down, you borrow stock from lender (i.e., broker) and when price go down, you buy stock to cover the position (to pay back the lender). As there has been no short sell in the Vietnamese stock exchange, the idea of expecting stock going down is set a barrier in the beginning. That is a part that I suppose contributing for the hike of stock price in the end of 2006 and the beginning of 2007. Thus, if somebody betted that the stock exchange would go down, he could not do anything. That is what makes the market inefficient. The market is efficient when it can incorporate information, both good and bad from the market, the industry and the company. If there was information that a company did not operate very well, its price could still go up because there is no sign as a short sell to know that it was not run well. Stock is a zero-sum game (there are anomalies and they are all famous for beating the market) so in this period of the Vietnamese stock market, the title on newspaper as such "the price of stock is still going down though company is making profit" is not very attractive. It is not contradictary because the market has been inefficient.
Coming back to short sell, if it had been in existence, the VNI index couldn't hike that much to go down at this level. I'm not sure if it's proper to make the analogy between the index and your mood. But imagine if your mood graph goes up and down days by days, the standard deviation would be less than the standard deviation of the mood that is extremely happy. Because you simply can't stay extremely happy for a long time horizon! The forbidding of short selling, in my opinion has driven up the herding pshychology. Or in another word, it discourages the contrarians. This forbidding makes a lot of sense, given that the Asian culture and mindset is already collectivistic and people tend to follow the swarm, the majority is always right! One reason explains for the absence of short sell is to protect the market from the Vietnamese point of view. The Vietnamese is afraid of foreign investors driving the market down. It's partly come from the fact that we do not want to be 'colonised', do not want the foreigners have great impact on price. Yet, what can be observed on newspaper everyday is the amount of stock foreign investors buy in and sell out. That kind of information is hard to find if you follow the FTSE, NYSE ( I know they are mature but wonder if the Chinese and the Indians do want what foreigners do that much.) Thus, when there is information that foreigners sell out, what would be the reaction of the domestic investors given that they have been following the foreigners?
Georges Soros recently has an opinion of the speculators, the main reason he thinks that drive up oil price. It is because oil contract is bought as an equity, (from investment firms, pension funds,...) instead of should be bought as a commodity by companies that use oil (aviation, manufacturing,...). Speculators make the market unbalanced, unsecure and it is the act of a speculator. This may explain for the absence of short sell in Vietnam since its inception.
Recently there have been many discussions about regulations for the banking industry and the financial market. The need of restricter regulations on a global scale has been raised from the Americans and the British, where market has been acknowledged as free. There is no such credit crisis in China or in Russia as you can imagine of high regulations there. Those guys from the Central of Bank of China argue that the western should learn from the Chinese in that sense. The westerns are learning from the easterns. But in my opinion, it's just time to merge between borders, borders of countries and borders of thinking. Again, there comes the fact, knowing the weakness to fullfil while keeping the strength (or even improve it).
I just wonder the fact that police's interference in the forex market (to be precise, at the jewelery stores, forbidding buying greenbacks) discourages or encourages Vietnamese's pshychology, I mean the herding pshycho. Will it reduce the buying and drive down the demand? It is very contradictary to the the loosing rule of Vietnam in two years in the permission of banks and brokerage companies' opening (which some of them are going to get the permission to close?). However, I believe that people think and act rationally ony if there is freedom. It will take time is all we can say. The question is how long will this 'mean' time last and what is your plan for this 'mean' time?
