Stock Market Sees No Positive Signs

The Vietnamese stock market is undergoing a very tough time when traded value has dropped sharply and liquidity has drained day after day. The investor confidence in the market is drying up, resulting to a stronger reduction of cash flows into the market. It is alarmingly essential to adjustments to policies for the stable long-termed market development.

 

When the fiscal year 2010 ended, the stock market was anticipated to thrive in the first quarter of 2011 as negative information seemed to come out all and to price in shares. And indeed, the market showed positive signs in the first two months of the year as the VN-Index, the main gauge in Vietnam, hovered at 520 points and the liquidity stayed at high level.

 

However, the positive sentiment failed to prolong after negative macroeconomic data were announced. The VN-Index sank from 484.66 points on December 31, 2010 to 460 points at present, or a drop of over 5 percent. Many stocks plunged to below par value of VND10,000 per share.

 

The number of days with traded value at VND1,000 billion or more reduced. Even, the daily value plunged to below VND500 billion in the latest two days (April 19 and 20). Valuations are considered “too attractive” but many investors still decided to cut holdings as the buy-side continued staying on the sideline. The net buying value of foreign investors also reduced in the first quarter and started rallying in a couple of recent days.

 

Investor concerns are mainly resulted from rising inflationary fears. The consumer price index (CPI) climbed more than 6 percent in the first quarter of 2011, fanning concerns over double-digit inflation this year which is driven by the strong rise in prices of basic commodities. For example, petroleum prices were hiked within a few weeks and electricity price was added from March. Besides, power producers proposed adjusting prices in every three months.

 

Many companies reported unsatisfactory earnings in the first quarter of 2011 given economic difficulties in the country and in the world. The bear trend inhibited companies from raising funds through the stock market. Moreover, the escalation of interest rates narrows access to bank loans for business operations of listed companies. As a result, business results in the second quarter may not be very good.

 

However, looking on the bright side, the Government defined that core tasks for this year will be inflation curbing. This move is highly appreciated given current context when CPI soared in the first four months. This is expected to ease inflation in the remaining months of the year and inflationary worries, which overshadowed the first quarter, are expected to be alleviated to a certain extent.

 

Additionally, the State Bank of Vietnam (SBV)’s policies relating to foreign exchange and gold markets started to generate positive effects. The foreign currency market becomes stable after the central bank successfully solved the difference between officially quoted rates with those on the free market. The rate-limit cap on foreign currencies also encourages people to exchange foreign currencies, particularly the US dollars, into the Vietnamese dong to deposit at banks. This shows that the intervention of authorities may not bring immediate effects but it may work well in the long term.

 

When pressures arising from macro problems are weighing the investor sentiment, the market rebound is unlikely in the short term. A sideways movement is therefore anticipated for the second quarter. Clearer trends may appear from the third quarter when inflation and interest rate pressures ease. For the time being, many prioritise cash holdings.