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HSBC report blames stock slump on domestic problems
The Hong Kong and Shanghai Banking Corporation (HSBC) has released its latest report on Vietnam’s financial market, which attributes the falls in the stock market to Vietnam’s monetary policy, aimed at curbing inflation.
HSBC’s experts believe the market is falling due to inner factors of the national economy, rather than being influenced by the global market.
In January 2008, the VN Index dropped by another 9%, which is now 28% lower than the highest peak seen in March 2007.
Some analysts attributed the falls to the recent global market struggle. However, HSBC’s experts believe this is the wrong conclusion.
In fact, foreign investors are still buying shares of Vietnamese companies; net purchasing turnover reached $211mil in the last three months. Meanwhile, international investors’ net sales were $22bil on Asian markets, excluding Japan. In January 2008, there were only eight out of 21 transaction days that saw foreigners’ sales higher than the purchasing volume.
As such, domestic investors have been the primary sellers in recent months, which is contrary to the situation in other Asian countries.
HSBC’s report pointed out that the slide of Vietnam’s stock market originates from domestic factors.
First, it attributes it to problems in the equitization of big corporations. Regarding Vietcombank’s IPO, as the offered stake price was overly high, only 9,000 investors joined the auction, and no strategic investor purchased Vietcombank’s shares at the average IPO price with the P/B at 11 (price-to-book ratio)
HSBC thinks the Government of Vietnam is too ambitious about collecting as much money from IPOs as possible, while it does not pay appropriate attention to making corporations more attractive in the eyes of long-term investors. In the UK in 1980s, stakes were valuated at low levels in the first IPOs so as to attract more investors.
Second, the problem in the monetary policy. As relevant ministries are focusing on curbing inflation, they have been taking measures that hurt the stock market.
Last month, the State Bank of Vietnam raised the compulsory reserve ratio from 10% to 11%, raised the base interest rate from 8.25% to 8.75%. The interest rate on the interbank market is now at 10%, and once hit the 27% level on the days just before Tet.
The biggest concern of foreign investors now is that they cannot get VND because the central bank has stopped purchasing the domestic currency.
Long-term benefits, short-term pitfalls
In fact, the Government is also concerned with the continuous stock market slump, and it has been urged by economists and investors to take actions to rescue the market from drowning.
Local newspapers predict that the currently applied ceiling foreign ownership ratio (49% in listed companies and 30% in banks) will be raised. Some articles wrote that the Government is considering allowing foreign investors to pay for stakes in dollars.
However, no official decision was yet issued by the end of January 2008.
As investors have rushed to sell shares in recent months, stocks have become cheaper. According to HSBC, the P/E index has decreased to 17.
HSBC believes that Vietnam is still a good investment address in the long-term, though there exist plenty of short-term risks, especially the impact of the tightened monetary policy and unclear IPO plans. Also, the Government has not succeeded yet in dealing with core problems, including the lack of information transparency, bad governance and low liquidity.
HSBC has advised investors to keep their investment portfolios in Vietnam, but says investors should not purchase more shares until the said problems are solved.
VnEconomy
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