Vietnam’s benchmark stock index, which has fallen 12 percent from a nine-month high, is likely to extend its slump on concern a government plan to curb inflation will slow the economy. Photographer: Le Quang Nhat/Bloomberg
25 Feb, 2011
Source: Bloomberg
Vietnam’s benchmark stock index, which has fallen 11 percent from a nine-month high, is likely to extend its drop on concern a government plan to curb inflation will slow the economy, according to Bao Viet Securities Co. and Vietnam International Securities Co.
The VN Index rose 1.2 percent to 466.96 at the close in Ho Chi Minh City today as trading volumes slumped. The gauge settled yesterday at the lowest level since Dec. 9 after the government outlined measures to tackle rising prices. The index may drop to 450, said Pham Thanh Thai Linh, Hanoi-based head of market strategy at Bao Viet Securities. Cao Thi Hong, vice general director of Vietnam International, a Hanoi-based brokerage, foresees the index sliding to 420.
“The package of measures that the government just signed is still not strong enough and the main concern is that the general macroeconomy is still bad,” Vietnam International’s Hong said. “Today’s gain in the VN Index is just like a bump on a sloping road. The low trading volume today showed that most of investors are very cautious.”
Vietnam’s Prime Minister Nguyen Tan Dung is trying revive investor confidence in an economy facing the strain of consumer prices that may accelerate from a two-year high as electricity prices rise and four currency devaluations in 15 months spur import costs.
Foreign investors sold a net 14.3 billion dong of shares on the Ho Chi Minh City bourse on Feb. 24, taking total sales this month to 30.8 billion dong, according to data from the exchange.
Weekly Drop
The value of stock traded on the Ho Chi Minh City exchange tumbled 33 percent from yesterday to 654.6 billion dong, the lowest level in a month. For the week, the VN Index lost 7.3 percent, the biggest decline since December 2009.
“I still see that a range from 450 to 470 is fair for the index,” Bao Viet’s Linh said after the market closed. “Low trading volume indicates there was less selling today since whoever needs to sell may have already done so.”
His firm is a unit of Bao Viet Holdings, the nation’s biggest insurer. The company’s shares slipped 3.9 percent to 75,000 dong today. Bao Viet Holdings, the second-biggest company in the VN Index by market value, slumped 21 percent this week.
Masan Group Corp. rallied 4.6 percent to 79,500 dong, paring its drop this week to 11 percent. The food and financial services company is the VN Index’s fourth-biggest member.
The VN Index, a measure of 280 companies, slumped 11 percent from a nine-month high on Feb. 9, exceeding the 10 percent drop some investors refer to as a correction. The gauge slid 7 percent in the past month, making it Asia’s worst performer after Pakistan’s benchmark index.
‘Still Fragile’
“The market is still fragile as there is no supporting factor yet,” Bao Viet’s Linh said by phone yesterday. “The market will drop and then go sideways.”
Dung cut the credit-growth target to below 20 percent from 23 percent for 2011, and asked ministries to narrow the budget deficit to less than 5 percent of gross domestic product this year, according to a resolution presented on Feb. 24 to policy makers. Dung urged a “cautious and tight” monetary policy and lowered this year’s money supply growth target to about 15 percent to 16 percent, down from 21 percent to 24 percent.
The premier also asked the central bank to slow the growth and proportion of lending in non-productive sectors, especially property and stock trading. Inflation accelerated to a two-year high of 12.31 percent this month.
Attractive Valuations
Stock declines have dragged down the average valuation of the VN Index’s companies to 10.5 times estimated profit from about 11.7 times on Feb. 9, which was the highest level since July, according to data compiled by Bloomberg.
“At current price levels, valuations are already very attractive, but that doesn’t mean stocks will advance immediately,” Bao Viet’s Linh said.
The central bank raised its refinancing rate by 2 percentage points to 11 percent last week, and boosted its reverse repurchase rate on Feb. 22. The bank devalued the dong on Feb. 11 to curb the nation’s trade shortfall and narrow the gap between official and black-market exchange rates.
The devaluations raise the risk of higher import costs, while a planned 15.3 percent increase in power tariffs on March 1 may also spur prices. The government estimates the impact of the devaluations and increases in fuel and electricity prices will raise Vietnam’s consumer price index by 2 percentage points this year, Finance Minister Vu Van Ninh said in Hanoi yesterday.
“The hike in electricity and petroleum prices will put pressure on inflation in March,” said Vietnam International’s Hong. “Local investors are losing confidence.”
--Nguyen Dieu Tu Uyen, Nguyen Kieu Giang, Diep Ngoc Pham. Editors: Darren Boey, Richard Frost
To contact the reporters on this story: Nguyen Kieu Giang in Hanoi at giang1@bloomberg.net; Diep Ngoc Pham in Hanoi at dpham5@bloomberg.net.
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net
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