Five factors in the fall of Vietnam’s stocks

The Hong Kong and Shanghai Banking Corporation (HSBC) has released the latest report in its series of reports about Vietnam’s stock market.

According to HSBC, there are five factors that contributed to the fall of the market in the last few months with the VN index down by 8% in May and 20% from its peak gained in March.

First, it was because of the overly high prices of shares. Despite the adjustments, the PE (price/earning) index of the listing shares remains relatively high at 31 (the highest level was 37), which means the PE would be 21 for 12 months (supposing that the EPS – earning per share – would be 25% for this year and 15% for the next year).

As such, the stock prices prove to be too high for an emerging market like Vietnam, though the market proves to have high growth potentials.

Based on the PE forecast for the year’s end at 18, HSBC’s experts have confirmed the prediction that the VN Index would be at 900 points by the end of the year.

Second, it was because of the possibility of the tightening of the monetary policy. With the CPI rising by 8.4% in July compared to the same period of last year, and exceeding the GDP growth rate of 8.1% in the first quarter, HSBC predicted that the central bank would require higher compulsory reserve ratio in order to control inflation. The possible move has been worrying many investors.

At the end of June, the central bank released a decision, asking commercial banks to lower the amount of loans for securities investments from the current level of 7% of total outstanding loans to 3% by the year’s end. The decision means that small investors will have to sell shares to pay debts to banks.

Third, the possible delays in equitisation process. BIDV, one of the biggest state owned banks, has asked for permission to delay its IPO. The Prime Minister has asked for a rescheduling of IPOs from now until the year’s end in order to avoid the oversupply of stocks on the market. The equitisation of four state owned banks may be delayed until strategic partners of the banks are selected.

HSBC does not think that the IPO delays would be good for the market. The IPOs themselves would help generate demand on the market as they would attract new investors, while they would help restore the confidence of investors. The delays may cause concerns that the government has become less engaged in the reform process.

According to HSBC, it is very likely that there will be no big IPOs from now to the end of the year, even in the next year.

Fourth, the unsatisfactory IPOs in the last time. Bao Viet’s share prices declined sharply after its IPO in May 2007. The prices of Thuan An Wooden Furniture and Tay Ninh Rubber Companies decreased by 17% and 13%, respectively, one week after their IPOs. These unsuccessful IPOs may foretell the lack of success of the coming IPOs.

Fifth, the disappointment of individual investors. The boom of the stock market earlier this year once made them believe that they could earn big money with stock investment. Meanwhile, the gloomy market in the last four months has disappointed them.

Foreign investors keep buying shares, but just in small quantities: they bought $54mil worth of shares in July, while the figure was $345mil in January. The daily trading volume declined sharply to $33mil in July, a half of the highest peak seen earlier this year.

However, according to HSBC, the stock market is still in good condition. Nearly all listing companies have satisfactory business results. Vinamilk, for example, has net income rising by 36% over the same period last year. Vietnam is still successfully attracting foreign investors and the national economy is growing well, though there is concern about the high inflation rate.

HSBC retains its viewpoint about Vietnam’s stock market, and it wants to accumulate Vietnamese stocks for long-term investment in the context of the VN Index coming closer to the 900 point threshold.

Source: VNE