Positive signs have been seen on the Vietnamese stock market in early 2012. Consecutive days of gains are rebuilding the investor confidence, heralding a good year for stock investors.
Positive signs
The support for investor confidence is a better economic performance, with inflation to be gradually controlled. Consumer price index (CPI) in January - the month with the country’s largest public holiday, Tet - was below 1 percent, paving the way for lowering interest rates in 2012. CPI is expected to stay low in February to create a stronger groundwork for bringing down deposit rates to 12 percent, or 13 percent in a more cautious approach.
Earlier, the State Bank of Vietnam (SBV) sent a signal that interest rates might be lowered in the second quarter. Meanwhile, developing countries also tend to reduce interest rates to boost the competitiveness of their enterprises, increase exports, and revive economic recovery and growth. For this reason, lowering interest rates is a possibility in Vietnam.
Especially, it comes to a surprise that bank liquidity has improved significantly after the Tet. This information is also confirmed by the State Bank and this is another ground for lower interest rates.
Investor confidence is an important factor to shape the short-term market trend. Optimistic macroeconomic information will be the opportunity for the stock market to create a new higher level.
In 2012, the stock market has also caught a special interest of the Government. The Ministry of Finance and the government is seriously rethinking the fundraising role of the stock market. It will be restructured for development in parallel with the banking system to ease burdens on the lending system.
In fact, the waves of gains are overlapping. First of all, the introduction of VN30-Index opened a new way for investment trend for both institutional and individual investors. Index tracker investing will be popular. Besides, trading time will be extended to afternoon hours from February 20, 2012. This development is quite quick and surprising because the trading time extension has been discussed since 2007. Although this method is not as much expected as the adoption of T+2 clearing payment mechanism but extended trading time is seen a measure to improve liquidity.
Previously, investors got a lot of positive information and signals from authorities. The first to be mentioned is the commitment and encouragement by Finance Minister Vuong Dinh Hue on the New Year days. “The Government will take measures to restore the stock market,” he said, quoting the speech by Prime Minister Nguyen Tan Dung at the lawmaking National Assembly meeting in November 2011.
Are companies really in good condition?
However, the health of listed companies - the greatest concern of investors - has not been confirmed. Capital shortage and high interest rates are barring companies from building up the trust of investors. In addition, complex changes in the United States and Europe and risks of oil price volatility are still on the horizon. All these factors will also directly affect operations of enterprises in general and listed ones in particular.
Placing the trust in the securities market restructuring in particular and economic restructuring in general is right but this is a long process. What is deemed most difficult seems to pass by. However, enterprises need time to stabilise and expand production and business activities and the market also needs time to recover strongly.
Dr Tran Dinh Thien, Head of the Vietnam Institutes of Economics (VIE) admitted that the economy remains in a difficult situation, especially in the first half [of this year]. And, the two backbones of the economy - enterprises and banks - have, and will, faced severe difficulties.
Most companies are living with exorbitant interest rates which have stayed above 20 percent over the past year. With such a high rate and a very narrow access to capital sources, the primary task of most companies is to survive.
For banks, the liquidity tensions have been eased because the harshest time - before the Tet - was over. However, long-standing imbalances in deposit and lending restructures (with the overwhelming proportion of short-term deposits to long-term ones) can hardly be resolved in a few months.
According to experts, banks will continue to face poor liquidity. Some small lenders may have to borrow money on the interbank market, mobilise gold and US dollars at high interest rates to offset cash shortfall. A worse scenario happens if the central bank withdraws money from the system as it often does after the Tet.
Macroeconomic conditions are believed to be getting better. Interest rates will likely be lowered in the second quarter at the latest. Gold and US dollar markets will also be tightly controlled and the property will remain inactive, the money will quickly flow into the stock market then.
But, there is a bad reality that liquidity of the stock market is still quite low. It shows the caution and hesitance of big cash flows.
Vietnamese
