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High inflations depressing foreign portfolio investors
Though Vietnamese securities are very cheap, they are not attractive in the eyes of foreign investors, because the investors fear the high inflation rate will make their assets decrease.
Earlier this year, when making the business plan, a foreign fund management company estimated that the inflation rate in Vietnam would be 12 percent in 2011. In early March 2011, the company raised the expected inflation rate to 13 percent, believing that the peak of the consumer price index was seen at the end of the first quarter already.
Recently however, the general director of the company said he feels unsure about the prediction, because the CPI in April is still high. He said “he feels the “pain” when the net asset values (NAV) of the funds managed by him are decreasing. It is lucky enough for him that 2011 is not the year for foreign investors to withdraw capital, because they can only do this once every two years.”
In early 2007, the NAV of the funds managed by Dragon Capital was estimated at 2.2 billion dollars. Meanwhile, the figure has plunged to 750 million dollars, according to Rothschild Securities, just equal to one third of that in the “golden age”.
The NAV of the other 100 foreign funds in Vietnam is also in the same situation. With the “hibernation” of the VN Index over the last four years, foreign investment funds have seen their billions of dollars vanished into the air.
“Everyone knows that Vietnam’s securities are too cheap if compared with the securities in other regional countries. However, foreign investors not only look at the low prices, they consider the macroeconomic stability; especially the inflation rate,” said Don Lam, General Director of VinaCapital at a recent press conference.
When will inflation go down?
In developed economies, it would be considered a big problem if the inflation rate is two or three percent. In other regional countries, the inflation could be 5-7 percent. No other country in the world ever saw the high inflation rate of six percent just after the first three months of the year like Vietnam.
The six percent inflation rate after three months proved to be high enough for foreign portfolio investors who plan to pour their capital to Vietnam; to rethink. It was not by chance that foreign investors rushed to sell out their shares on the HCM City Stock Exchange (HOSE) in February 2011, the month when the consumer price index (CPI) increase was very high.
According to HOSE, in January 2011, foreign investors purchased 3089 billion dong worth of stocks and sold 1672 billion dong, which meant the net purchase of 1417 billion dong.
However, the situation was quite different in February and March 2011: They bought 1724 billion dong and sold 1730 billion dong worth of stocks in February, while the figures in March were 2694 billion dong and 2676 billion dong, respectively. Even member funds, which do not list shares on the bourse and they are not required to expose the information about NAV, also kept the “wait-and-see attitude”.
Khong Van Minh, from French Jaccar Fund Management Company, said “it is nearly impossible to attract foreign portfolio investment when the inflation rate is at the two digit level.” “Right after the disbursement, we can see the values of the investments decrease day after day. The more we disburse money, the bigger loss we will incur,” he said.
The International Monetary Fund (IMF), in its report about the world’s economic situation released in April 2011, predicted that Vietnam’s inflation rate would be about 13.5 percent in 2011. Meanwhile, the dong deposit interest rate is now capped at 14 percent per annum, which means that depositors would get the modest actual profit of 0.5 percent per annum. As for securities investors, even the modest profit of 0.5 percent also proves to be impossible.
When will the inflation rate go down? General Director of a bank said that “when the dong capital mobilized by commercial banks increases sharply, the CPI increase will go down.” By March 16, 2011, the amount of capital mobilized had increased only by 1.56 percent in comparison with the end of the last year. In other words, with much money and few commodities, the prices will be high.
vietnamnet, SGTT
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