IMF wary of Vietnamese stock market boom

The International Monetary Fund has urged Vietnamese authorities to keep a tighter grip on the stock exchange to curb its recent volatility.
In recommendations sent to the State Securities Commission, it has called for increased measures to limit risks in the securities market, particularly in relation to commercial banks that accept stock as collateral for loans.

In principle, only banks with sound risk management regimes and qualified staff should be licensed to accept securities.

The State Bank of Vietnam should squeeze monetary policy and cap banks’ lending.

The central bank should also be more flexible in managing the dong, allowing its value to fall if needed.

The government should try to improve transparency to ensure the reliability of the stock market, and strictly enforce regulations on public disclosure of information. Insider trading should be harshly punished.

The government’s efforts in the past to manage the overheated market were appropriate. These included capping lending against stocks by commercial banks and keeping a close eye on foreign funds.

The P/E ratio of the Vietnamese stock market is very high compared to the global average. For the 20 largest firms on the Ho Chi Minh stock exchange (accounting for 99 percent of the market capitalization) it is 73 in January against a world average of a mere 16.4.

The rapid growth of the market has been prompted by optimistic forecasts about the Vietnamese economy and the country’s recent WTO membership.
This has also led to growing foreign portfolio investment since November but many shares are overvalued.

The indirect investment has also created a current account surplus, which could easily become a deficit when demand for imports increase due to WTO-fuelled tariff cuts.

Source: Thanh Nien