Rate Cut: What Listed Businesses Have Opportunities?

On May 28, the State Bank of Vietnam (SBV) decided to lower regulatory rates and deposit rates. Commercial banks immediately followed step. The same day, Asia commercial Bank (ACB) and Vietnam Bank for Investment and Development (BIDV) slashed lending rates for borrowers. Corporate borrowers were subjected 12 - 13 percent per annum while consumer loans carried from 15.5 percent.

 

Lien Viet Post Commercial Joint Stock Bank (LienVietPostBank) announced to apply annual interest rate from 13.5 percent to all small and medium-sized enterprises (SMEs) and close customers from May 30.

Looking at macroeconomic factors, this is a good opportunity to revamp the falling market. On contrary to forecasts, the investor sentiment was not improved. Even, big companies were cautious with this information. Performances were lacklustre on both the Hochiminh Stock Exchange (HOSE) and the Hanoi Stock Exchange (HNX). Liquidity drained and hovered at VND1,000 billion a day. This caused many stocks to lose ground although the supply shrank.

 

Explaining current market distortions, most securities companies pointed out that the market was not strong enough to shape a new trend or earnings prospect was incommensurate with potential risks. And, they recommended investors limit investing at this time.

 

Investors themselves are now more cautious with supporting information. In early months, although there was a little improvement in macroeconomic factors, the market still rose more than 40 percent in just four months. The dramatic increase in such a short time in the face of little supporting information corroded investors’ interests in such information. Investors felt that the market needed more time to establish a new price level before extending gains in the wake of economic recovery. Besides, investors realised that the upward or downward movement of the stock market sometimes depends on the degree of involvement of financial institutions and foreign investors or, in other words, depending on the "waves" of the market. Hence, many do not buy when the market receives positive information because they avoid dropping gains or suffering losses when the market goes down.

 

At the medium term, the market slump is an opportunity for investors with strong financial resources to pick up cheap stocks. The market is believed to jump high when the economy is actually revitalised. Many companies are making a profit with rising revenues in the tough time. Besides, more companies will have better business performances from now till the end of the year since interest rates start to fall. This will be a basis for medium-term growth of the market.

 

The rally of the securities market in the medium term is relatively obvious but many businesses will continue to face difficulties and challenges because of their long losses. Investors will not choose loss-making securities or bubble stocks.

 

Investors may not choose debt-laden companies although their business results were previously very impressive. Biggest debtors are property companies. Accordingly to statistics, real estate companies reported VND5,000 billion of debts as of the end of the first quarter of 2012, equal to 96 percent of their assets. High ratio of debts on assets poses huge risks to these businesses. BAS, TLC, VSG, SHC and THV are now typical cases.

 

Currently, property companies’ access to cheap capital is very narrow because of its huge bad debts at banks. In general, good performing businesses are accessible to low-interest loans while worse performers are not. Then, the stock market will see a broad and deep classification of stocks as mentioned in the newly launched stock market restructuring scheme.