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Vietnam’s stock market will have to wait
In its latest report about Vietnam’s economy released on October 3, the Hong Kong and Shanghai Banking Corporation (HSBC) said that the recent falls of Vietnam’s stock market are not closely related to the troubles of the global market.
In September 2008, the VN Index of the HCM City Stock Exchange decreased by 18%, higher than the decrease of 16% of MSCI index of Asia (not including Japan).
The report, Vietnam Monitor Issue 18, focused on analysing the two main reasons for the slide of the VN Index in September.
High P/E
After strong recovery in August, the P/E (price on earnings ratio) reached 15 on the HCM City bourse (the profit serving the calculation was 2007 profit).
HSBC said that it is very difficult to calculate how the P/E will behave in the future as forecasts about the profit of listed companies vary. HSBC once forecast that the profit growth rate of listed companies on HCM City bourse would be 10% in 2008 and 2009. However, the forecast figure may not come true as the biggest listed companies saw profit down by 15% in the first quarter of the year.
Therefore, HSBC changed its forecasts about the expected profit growth rates of listed companies to minus 10% growth rate for 2008 and plus 20% for 2009. With the new levels, the P/E could have been 14.8 at the end of August and 14.6 now. However, these could still be optimistic figures.
HSBC thinks that even these are relatively high P/E ratios if noting that the P/E ratios are decreasing in other Asian markets. The average P/E ratio on Asian market was 10.3 at the end of September.
Foreign investors’ net sales
Heavy sales by foreign investors in September were also cited as a reason behind the falls of Vietnam’s stock market. For the first time since March 2007, foreign investors sold more than they purchased, worth $166mil.
HSBC believes that the chaos of the global stock market was one of the reasons that prompted foreign investors to sell stakes out.
Another important reason was that all the money of investment funds has been disbursed, which means foreign investors cannot purchase more stakes at this moment.
Market not likely to bounce back
HSBC does not think that Vietnam’s stock market will prosper before the end of the year.
The prediction comes partially from the fact that the global market remains gloomy. International investors are hesitant to make investments in a market with big fluctuations like Vietnam.
According to HSBC, it is not likely that foreign investors will withdraw their capital from Vietnam, since investment funds in Vietnam are all close funds.
The falls of the world’s economy will surely have impacts on Vietnam’s economy. With high inflation, the State Bank of Vietnam will not cut the basic interest rates, which means that the stock market will still be influenced by high interest rates.
Supply are expected to increase in the time to come. It is highly possible that the government will allow the IPO of Vietinbank before the end of the year. Local newspapers have reported that 40 companies with the registered capital of $500mil will enter the bourse by the end of the year.
HSBC predicts that the VN Index will stay at around 450 points and increase to 550 points in 2009.
VNN
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