Stock Market Outlook in the Second Half of 2009

The Vietnamese stock market in the first six months of 2009 left important hallmarks in the nine-year history. New records and important milestones were created. The VN-Index dropped to its four-time low of 235.5 points on February 24, 2009 while HNX-Index retreated to its all-time low of 78.06 points, much below the start of 100 points. The record trading volume on HOSE reached 101,774,520 shares and fund units on June 10, 2009 while the all-time high liquidity on HNX was 56,522,170 shares. In the six-month period, the VN-Index recorded growth of 46 per cent, the eighth fastest growing among 89 important indexes in the world. What is the outlook for the Vietnamese stock market in the last six months of 2009: a new growth or a new bottom?

According to Kim Long Securities Corporation, the Vietnamese stock market experienced two completely different periods in the first six months of 2009. The first period lasted from January 1 to February 24 when the steep decline of global stock markets sank the Vietnamese stock in the two months.

 

The biggest influence of global economic crisis on the Vietnamese stock market is psychological aspect. This is an important factor for investors to make buy or sell decisions. Despite the global economic slump, macroeconomic indicators in Vietnam remained good in the first months of the year. Movements of the Vietnamese stock market closely followed the world’s trends. Gains or losses of major markets were reflected on the VN-Index and the HNX-Index. Main indexes in the world bleached decade-long low. (Dow Jones touched 6,547.05 points and Nikkei 225, 7,054.98 points). The VN-Index and HNX-Index also slid to their new bottoms. Share values plunged and liquidity drained, a result of oversupply and under-demand.

 

The VN-Index hit its four-year low at 235.5 points, a decrease of 80.12 points, or 25.38 per cent, from the end of 2008. Liquidity was seriously weakened, driven by small trading volume and value. On average, the daily trading was 7,860,421 shares and fund units valued at VND170.02 billion. Like HOSE, HNX also underwent a hard time when the HNX-Index retreated to 78.06 points, much below its starting of 100 points.

 

The second phase is from February 25 to June 30, 2009. Driven by global rallies, the Vietnamese stock market entered a new phase of strong recovery. Signs of global economic recovery, good macroeconomic indicators and attractive earnings reports by listed firms in Vietnam supported the long and strong rally of the VN-Index and the HNX-Index.

 

Unlike pessimistic forecasts by economic specialists, business operations of listed companies were reportedly quite good in the first six months of 2006. Several companies completed more than half year business plan in the first six months, including HPG, COM, FPT, REE and PPC. Besides, a lot of industry news also helped shore up share prices. For instance, prices of input materials in plastic industry slumped, demand for steel and cement soared, and provisions for financial investments were trimmed. As a result, prices of financial, securities, rubber, steel, construction material, real estate, shipping and insurance shares rallied strongly.

 

Together with global rallies, the advances of those shares in nearly four months were leverage to drive up the VN-Index and the HNX-Index. This motivated investors to spend more into the equity market, pushing the VN-Index up to 448.29 points on June 30, a rise of 42.3 per cent from the end of 2008 and 90.36 per cent from its four-year low of 235.5 points in February. Liquidity steadily improved, averaging 38,983,548 shares valued at VND1,142 billion per trading day. After many attempts, the HNX-Index passed the 100-point sentimental benchmark. On June 30, the measure closed at 149.09 points.

Before strong and long rally of the Vietnamese stock market (as of June 30, 2009), many worried that the uptrend was driven by short-lived over-optimism of investors thanks to stimulus packages, not the recovery of Vietnamese economy. Many pessimistically feared the Vietnamese stock market would decline rapidly as at the end of 2008, citing the quick and steady declines over the past two weeks. According to Ms Vu Thi Kim Lien, Vice Chairwoman of the State Securities Commission (SSC), “Theoretically, the stock market rallied about 3-8 months ahead of the economy. At present, none can affirm the recovery of the Vietnamese economy. However, active movements of the stock market proved that investors were feeding hopes in the quick economic recovery.

 

Ms Lien said SSC is trying to enhance the transparency of market players, to prevent unfair transactions and warn investors of market risks. “However, investors decided their market entry or exit. They need to know risk analysis and market analysis,” Ms Lien emphasised.

 

Remarking strong cash flows into the stock market, with daily trading value exceeding VND3,000 billion, Ms Lien pointed out that investors anticipated the strong uptrend of the stock market; thus, they channelled capital from other sources like bank deposits, real estate and gold into equities. Foreign capital has positively returned Vietnam in April and May. Especially, in the latest 20 days, foreign investors bought net over VND1,100 billion of Vietnamese shares on HOSE and some VND240 billion on HNX.

 

Mr Johan Nyvene, General Director of Ho Chi Minh City Securities Corporation (HSC) said the VN-Index will hardly reach 700 points in 2009 because the average P/E ratio of the market will be significantly high. The gauge is estimated to stand between 450 points and 470 points at the end of the year.

 

According to Ms Lien, if the Vietnamese economy is improving and no sudden changes happen to global markets, the Vietnamese stock market will unlikely see a decline as in 2008.