Where Are Cash Flows Going?

 

Although the economy is weighed down by difficulties facing manufacturing, agricultural and exporting companies, speculative markets are recovering impressively. The HNX-Index, the gauge of the Hanoi Stock Exchange (HNX), advanced more than 45 percent in the year to date, with hundreds of companies seeing a double growth or more from this rate. It comes as a surprise that real estate and securities companies increased a lot earnings prospects for the first quarter remained pessimistic. Meanwhile, the rally in bank shares was understandable.

 

It seems that money flows had to oft out a place to be rested while there was no brighter investment channel. In early April 2012 when the government’s decree on gold trading was issued, the bullion market officially ended its last ambitions. Perhaps, gold investment and speculation channels were almost shut when 12,000 gold producers and traders had to shift to jewellery gold trading rather gold bars. Even, famous brand names like Thang Long Dragon or AAA were forced to exist under the name of SJC.

 

Six months for shift may be regarded as a grace period but it is not so pleasing. Small traders turned out to understand that only big ‘sharks’ - natural monopoly SJC and top-rate commercial banks like Eximbank, Agribank, Vietinbank , ACB and MHB are allowed to trade gold on margin which is expected to replace the free gold trading market by the State Bank of Vietnam (SBV).

 

Obviously, cash flows have been blocked in gold channel. As a result, a vast proportion of money was transferred from this market to other promised lands. In the eyes of professional investors, the continuous rally of the stock market, particularly daily changes of 5 percent on HOSE and7 percent on HNX, were a strong magnet that could not miss.

 

Doubts intensified when the central bank reduced deposit rate caps were cut twice in less than one month from 14 percent to 12 percent. These reductions (1 percent each) did not mean much for borrowers but they importantly evidenced the rate cut tendency. It is said to boost borrowing as banks were reportedly abundant of money.

 

Securities market, in its history, and the real estate market moved in the “vent” principle. Not all cash flows are chosen to rest in the stock market, especially when many investors suffered huge losses in 2011. They learned a dear lesson that they should never put all eggs in one basket. And, their other basket is the housing market.

 

It is not surprising to see a slight recovery in affordable housing segment after the central bank lowered deposit rate caps. In Hanoi, buyers started to visit apartment buildings offering for sale at VND13 - 14 million per square metre.

 

The property market is expected to witness an improvement in trading atmosphere, particularly successful deals to energise the market vitality.

 

Investors with handy money feel tenser in recent days after the central bank sent a message that it would unwind lending restrictions on real estate business, except for some discouraged sectors.

 

Perhaps, the Vietnamese economy will recover with a longer lag than the United States economy but this does not stop speculative markets like securities and real estate to make a early advancement, with a greater margin than the US.

 

Smart money, a preferred concept in market economy, will know where to rest in. However, this year, recession and stagnation are making it more difficult.

 

Investment channels, either securities or real estate, are now quite attractive because valuations are in the bottom region. But, the uptrend is always continued by a downturn and this is not forecastable for all. Without enough precaution, they may be hit with another blow.