2012 - Defensive Year

VAFI explained that world economies are still weak and uncertain and the healing process will need some years, with focus paid to public debt resolution, stability and development.

 

Besides, the domestic macro economy has improved but remained slow and there are a lot of problems in management. Agriculture, export, tourism and manpower export will continue to be outperformers in the coming years.

 

The balance of foreign currency payments has much improved and tended to be in a surplus in the coming years. Vietnam may become a surplus exporter in 7 years to come or so if the State has positive and effective solutions to monetary policy management. But, interest rates can stay at as high as 15 percent per annum - an uncompetitive rate in relation to regional countries and the world - because authorities have not sought out best solutions.

 

Besides, public investment is not focused and not cost-effective, compared with other countries in the region); authorities are not good at managing macro economy and fail to meet requirements. Hence, policy risks or unfavourable business environment will persistently exist in many years.

 

According to VAFI, excess investment in previous years will lead to the excess of production capacity in many economic sectors. Cement, steel, ocean shipping, securities, finance and insurance sectors are in the state of excess and this gives rise to loss-making operations and bad debts. Meanwhile, this investment goes beyond corporate governance.

 

According to VAFI, the stock market will recover in 2012 but domestic and foreign investor forces will become more defensive because they were hurt by economic turmoil. Good-performing companies can mobilise capital on the stock market but the issuing price will be very low - a big disadvantage for existing shareholders.

 

Currently, many existing shareholders demand the board of directors to pay cash dividends with as high payout ratios as possible. Their request is now the best way to take back investments. They can reinvest into the equity market where valuations are attractive. Indeed, they do not usually ask for cash dividend when listing prices are high, liquidity is good, according to VAFI.

 

There will not be a common complete model of defensive business strategy for all enterprises but all models share fundamental characteristics. According to VAFI, companies are necessarily determined to reduce, liquidate, and transfer ineffective and unprofitable projects, business divisions and assets to clear unprofitable capital, reduce debts, lower prices, boost profits and enhance financial capacity.

 

Besides, they should be willing to sell entire businesses or shares, controlling shares, subsidiaries to strategic shareholders, or even cancel the listing to increase benefits of shareholders. They also need to stop or delay new ineffective investment projects. They must carefully assess new capital-intensive projects, particularly those with a lot of lending.

 

According to many specialists, shareholders should not grant full authority to the board of directors to decide on investment projects as before. The board must present details of investment projects to general meetings of shareholders.

 

Shareholders should ask the board of directors to sum up investment projects to draw lessons for future ones and request the board to present short-term and long-term plans for cash dividend payment.

 

They should vote against the retaining of profit if the board does not present an effective way to use it. The board must be asked to explain reasons for setting aside money for provision funds. If they lack persuasive arguments, the money should not be retained but delivered to shareholders.