The Vietnamese stock market development is opposite to most expert forecasts. The downward spiral of the market at the end of this year casts doubts over the recovery of the stock market. Price-to-earnings ratio or P/E ratio is reportedly much lower than other markets in the region and likely disorienting the market in early 2016.
Narrow-range movements
According to Ho Chi Minh City Securities Corporation (HSC), in the second half of 2015, Vietnam's stock market hovered in the narrow range of 510 - 650 points. The main reason was attributed to the narrow gap of money supply and credit growth in 2012- 2014 (up 12 per cent a year), said Fiachra Mac Cana, Executive Manager of Institutional Customers Division, HSC.
He explained that money supply in the market is like the “source of energy” fuelled to run the economy. The strength of credit source is illustrated partly by supply money that banks directly finance industrial operations, infrastructure development and real estate.
The free liquidity is the gap between credit growth and money supply. The normal gap is 2-3 per cent. This free liquidity is the available source, meaning that it can be invested in stock and bond markets or other assets. With a normal economy, the gap between credit growth and money supply is quite small.
In the 2012- 2014 period, the stock market grew up well due to the relatively wide gap between credit growth and money supply although the economic growth was slow at that time. At present, Vietnam’s economy is now on contrary as it is recovering, driven by growing production and business operations and improved construction industry. This result was reflecting results of good infrastructure construction and civil property market. However, the money supply growth was slightly slower than credit growth.
Fiachra Mac Cana said that current money supply is partly showing concerns about dong value. While the stock market liquidity is weakened, the gap between money supply and credit growth is very close, resulting in a hardship in seeking domestic capital source for the rally across the 650-point resistance benchmark. Therefore, the stock market seems to be more dependent on foreign capital.
To enhance the effect of foreign investment attraction, Vietnam needs to ease foreign ownership rules or issue non-voting depository receipts (NVDR) as foreigners have a high demand for owning Vietnamese shares. They can pour hundreds of millions of US dollars into the stock market each time, he noted.
For instance, State Capital Investment Corporation (SCIC) is planning to divest from Vinamilk Corporation via a public auction. This information drew the fancy of foreign investors, some of whom have up US$1 billion of cash. Thus, the matter is not how much a foreign investor is fond of the Vietnamese market but how willing he/she investor and he/she must see Vietnam as a reasonable investment channel.
The above factors, coupled with the participation in the TPP, the Vietnamese stock market will continue to move in the narrow range around 650 points in the first half of 2016 but it may rise sharply in the second half 2016, even go beyond the resistance level, partly thanks to foreign inflows.
Continued reform for stronger competitiveness
To restructure the economy in the new period, the stock market needs to play an important role in this process. In 2016, according to economic experts, the stock market must focus on such measures as the continued reform of securities companies and modernisation of market structure. Foreign companies will be allowed to acquire and possess 100 per cent of stake of domestic securities companies. Stock exchanges will be merged. Stock, bond and derivatives markets will be formed to raise the position of Vietnamese Stock Exchange in ASEAN.
Vietnam should base on market liquidity demands to introduce suitable products. To maintain the stable development of the stock market, it must strengthen investor interests by attractive investment opportunities.
To mobilise public funds, companies need to introduce long-term development plans, improve transparency, and apply advanced governance practices.
To exert a pull on foreign investors, Vietnam needs to ease regulations on transferable shares in listed companies with State ownership and build investor protection funds to safeguard investors in case financial intermediary institutions go bankrupt.
Vietnam's capital markets, in which the stock market is an important part, is expected to enter a new cycle of development in 2016, powered by solid and powerful economic foundations.
Luong Tuan
Vietnamese
