HSBC forecast rocks investor confidence

A HSBC report predicting the VN-Index will drop to 900 points by the end of the year caused havoc on the exchange on July 3.

The index, the country’s primary stock indicator, on July 3 closed at 977.3 points with the HCM City Securities Trading Centre trading at a price-earnings (P/E) ratio of around 33 times on 2006 earnings.

“Assuming 25 percent EPS (earnings per share) growth this year and 15 percent next (roughly the rate of nominal GDP growth), this equates to a P/E of 25 on 2007 earnings and 21 on 2008,” the report said, indicating the market is currently grossly overvalued.

Most investment funds are not hurrying to pump more money into the stock market, wrote HSBC analysts, and are expected to use their cash positions during initial public offerings of large State-owned enterprises during the second half of the year.

HSBC indicated it would not be aggressive buyer at this time, though “the fundamental long-term story for Viet Nam is very much intact.” The leading global bank predicts the index to move sideways over the next few months.

The HSBC forecast shocked Vietnamese investors given local analysts have been predicting the index would rebound to as high as 1,300 points by the end of the year.

However, foreign fund managers were seemingly unfazed by the HSBC news.

Juerg Vontobel, chairman of the Viet Nam Holding Asset Management, said foreign investors have been very cautious before deciding to invest in the local stock market.

Fund managers worry that share prices in an emerging market like Viet Nam were too high and the market was not as attractive as it had been six months ago.

Vontobel suggested that retail investors should avoid taking out loans to invest in stock and if already exposed to debt should consider selling shares as soon as possible.

Vo Ngoc Huy, deputy investment manager at Sacombank Securities, did not agree with HSBC’s assessment, saying the market is still largely based on local supply and demand.

“Local investors now seem to be more confident in making decisions. They are well-informed about the stock market and do not depend too much on foreign investors’ lead,” he said.

Having already gone through a few market fluctuations, investors have also become more patient, he added, and would not be affected by the negative forecast.

Analysts also argue that any market declines over the short term should be limited by positive mid-year earning reports.

Vu Hoai Chang, a SME Securities analyst, said it was impossible for the market to fall so sharply due to solid macro-economic factors and positive business performance.

He also stressed “ HSBC made the prediction based on an unsuitable P/E ratio”. By only looking at the P/E of shares, investors would not buy any stock, he said.

Do Thuy Anh Phuc, an investor at SSI, remains optimistic and does not foresee the market dropping below 950 points. She predicts the HCM City bourse will recover in the next few days as local investors go bargain hunting and become net buyers.

Source: VNA