Vietnam’s stock market has recovered to a certain extent after a prolonged losing run. However, market liquidity has not improved significantly. Sideways movement remains the mainstream.
Positive signs have begun to appear but they are not enough to restore investor confidence. According to securities experts, to regain the investor confidence, the stock market must achieve the following four basic issues.
1. Bad debts must be settled soon and thoroughly. Currently, how the Vietnam Asset Management Company (VAMC) deals with enormous bad debts purchased from the banking system catches the public attention. If VAMC is successful, investors will have a more thorough view on the State Bank of Vietnam (SBV)’s efforts to tackle bad debts. It is considered an effective mental remedy for investors.
According to the plan, from now till the end of the year, VAMC will issue about VND35 trillion of special bonds, divided into two tranches. In the first tranche, scheduled from September 21 to October 30, VAMC will sell about VND10 trillion of special bonds. In the second phase, starting from November 1 until the end of 2013, the company will issue VND20-25 trillion of special bonds.
2. The future of the third round of quantitative easing (QE3). According to statistics, from May 23 to end-August 2013, foreign investors pushed up sale of market-driving blue-chips for VND2,993 billion. This is considered the main reason to the sharp decline of the stock market during this time.
Like other emerging countries, the stock market in Vietnam has also witnessed a strong flight of foreign investors. This has caused domestic currencies and stocks in many Asian countries to plummet. According to securities experts, this came as the result of the US Federal Reserve (Fed)’s intentions to scale down QE3 package.
If Fed officials are at odds, the future of QE3 will be unclear. If QE3 ks kept, the strong recovery of the market is highly optimistic because foreign cash flows will return.
In fact, in September, foreign investors were net buyers in Vietnam's stock market with a total net value of VND407 billion on the Ho Chi Minh Stock Exchange (HOSE) and VND205 billion on the Hanoi Stock Exchange (HNX). Although the purchasing power was not too strong, this was a good sign for the market amidst lack of good news.
3. Controlling inflation. This year, inflation is no longer a top concern of investors. However, the upward movement of consumer price index (CPI) is becoming one of obstacles to investor psychology.
In September 2013, the country’s CPI rose 1.06 percent over August, 4.63 percent over December 2012 and 6.3 percent over the same period of 2013. High CPI growth will be a big disadvantage to the stock market today. This will cause a considerable effect on the target of controlling inflation at 7 percent in 2013 and interfere with monetary policy easing which is being applied.
4. Improved credit growth. According to the statistics of the State Bank of Vietnam (SBV), the amount of cash the banking system injecting into the economy as at end-August 2013 is 6.45 percent over the end of 2012. This is an optimistic sign when it is placed in comparison with 2012. However, this growth rate is still lower than the target of 12 percent in 2013.
This reality demonstrates the fact that our business environment and our economy have weakness attractiveness to foreign investors. Companies will accelerate their operations in the fourth quarter and the demand for cash will surge, the currently low lending rate is a good sign.
Luong Tuan
Vietnamese
