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Stock market burdened by inflation
The information about the high consumer price index increase (CPI) in May has raised new worries about the continued falls of the stock market.
Targeted inflation? No exact figure
Official statistics show that the CPI increased by 3.91% in May and 19.09% in the first five months of the year compared to the same periods of last year. These are surprisingly high rates since a lot of drastic measures to curb inflation have been taken.
According to Minister of Planning and Investment Vo Hong Phuc the lowest possible inflation rate for 2008 is 22%. With such a high inflation rate, the stock market will clearly be burdened.
The prices of food and foodstuffs, which account for 42.85% of the basket of commodities used to calculate the CPI, are seeing the unprecedented rate of 22.19%.
The government explained to the National Assembly that imposing high taxes on rice exports or reducing rice exports could reduce food and foodstuff prices. However, the measures would lead to the sharp reduction of exports, increasing the trade deficit, thus badly affecting people’s lives.
No exact figure about the targeted inflation rate has been released. On May 31, the government reported before the National Assembly that the goal for 2008 is ‘curbing inflation and price increases, gradually reducing the consumer price index to a one digit level in some years’.
Worries raised about listed companies’ business performances in Q2
Listed companies all reported satisfactory business results for the first quarter of the year. However, worries have been raised that the good results may not continue in the second quarter.
According to Euro Capital, a securities company, the high inflation rate and tightened monetary policy did not influence businesses’ performances in the first quarter, but they will put big difficulties on businesses in the second quarter. High crude oil prices, a high inflation rate and high deposit interest rates (in order to ensure positive real interest rates for depositors) are reasons that money will flow away from the stock market.
Kelly Wong of HCM City Securities Company (HSC) said that the foreign currency market is witnessing a gap between unofficial and official exchange rates. The current policy on lending in US$ is putting difficulties on some exporters.
With lending interest rates as high as 18%, it will be very difficult for businesses to make profit. The increases of material prices also are not helping local producers.
There have been signs heralding a quick recovery of the stock market. The market witnessed consecutive sharp falls last month. The 400 point threshold of the VN Index may be touched this week if the market has three more trading sessions of falls. Securities companies are all very reserved when giving advice to clients about the ‘deepest low’ of the market. The pressure to sell stocks now is still very high.
Euro Capital has told its clients to… wait until macroeconomic conditions are brighter.
VNN
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