Don't be too hopeful, stock investors told

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Slowing inflation and talk of financial reforms have not boosted market sentiment as expected, and analysts are predicting the worst will not be over any time soon.

Phan Dung Khanh, research manager at Kim Eng Vietnam Securities Co., said the stock market may move sideways or only recover slightly next year.

Macroeconomic measures taken by the government have gained initial results with the exchange rate remaining stable and inflation slowing down, but signs of stability have not come yet, he told the Thoi Bao Kinh Te Saigon news website.

Vietnam's consumer prices rose 19.83 percent in November, easing from 21.59 percent the previous month. The government is confident that inflation can be controlled at 18 percent at the end of the year, and this has triggered hopes that interest rates can be lowered.

But Khanh advised investors not to be too hopeful, saying inflation usually soared in the first quarter of the new year, which would make it difficult to cut interest rates.

Nguyen Duc Thanh, who heads the Vietnam Center for Economic and Policy Research at the University of Economics and Business in Hanoi, said when there are still risks to the economy, lowering rates is not an easy task.

Lending rates should have fallen already after the central bank imposed the 14 percent cap on bank deposits, Thanh said.

However, a high ratio of bad debts and limited financial capabilities of commercial banks have kept interest rates at a high level, he said, noting that interbank rates at times reached 30 percent per year.

Thanh also said the goal of reducing inflation to a single-digit rate in 2012 is not an easy one to achieve.

"There are still no optimistic factors for the stock market next year," he said. Listed companies may continue to face difficulties and capital flows into the market may keep weakening, he added.

Nguyen Xuan Minh, general director of fund manager Vietnam Asset Management, told Thoi Bao Kinh Te Saigon that there is a probability that more foreign investors will pull out of the market in 2012.

Fund managers will have a tough time trying to convince the investors to stay, but they themselves have been struggling with the market downturn, Minh said.

Meanwhile fresh cash flows are likely to be scarce next year as both the global and local economies are not picking up, he said.

Bao Viet Securities said in a note late last week that the market still showed no signs of attracting cash flows.

"Investors should be patient, waiting for confirming signals of reversal before making investment decisions," the company said.

The VN-Index, the benchmark measure of the Ho Chi Minh Stock Exchange, lost 9.5 percent in November, the biggest monthly decline since May, according to Bloomberg data.

Banking reforms

Viet Capital Securities Company said in a report that investors are on the fence following the central bank governor's comments on the banking system at the National Assembly late last week.

Governor Nguyen Van Binh said there are eight small lenders that are weak, accounting for 5 percent of the system. He said the goal of banking reforms is to have two lenders that can compete on a regional level and 10 to 15 banks that can become "pillars" to support the whole system.

According to Viet Capital Securities Company, banking reform has attracted the public's attention but details of a restructuring plan were sparse. "We still maintain that M&A (mergers and acquisitions) within the banking system are not easy," the company said.

RISKY BUSINESS

Around 40 of Vietnam's 105 securities brokerages have failed to meet financial safety requirements, Thoi Bao Kinh Te Saigon reported, citing the State Securities Commission.

According to the report, many companies in this group had leveraged clients using their own capital. As the investors incurred losses, the brokerages were caught in the middle of the bad situation.

Some are now trying to collect what they can from their clients, while others will have to accept losing money completely, the report said.

In an attempt to protect other investors, the State Securities Commission said it will narrow down or put an end to the brokerage business of companies that fail to operate safely.

It also said that while the central bank may lower the deposit rate cap, such a move could offset all the hard work that has been done so far to fight inflation. "We feel that a lower cap without corresponding improved liquidity would have little positive impact for businesses," the company said.

News website VnExpress reported Tuesday that some lenders have urged the Vietnam Banks Association to ask for liquidity support from the central bank. Some banks have even risked being punished by breaching the deposit rate ceiling as many clients are no longer interested in depositing their savings, anticipating changes in the banking system, the report said, without mentioning the bank names.

Some optimism

But some analysts are more optimistic about the market's prospects.

ACB Securities said Monday that the central bank's emphasis on the restructuring plan for the banking system may actually help to restore market confidence. "Moreover, if inflation continues to decrease by the year-end, the State Bank of Vietnam will pull down the deposit interest rate cap, leading to a decrease in lending rates."

The company also noted that Prime Minister Nguyen Tan Dung has said that the government would come up with solutions to help the stock market as well as the real estate market.

"This positive news shows an optimistic outlook of the macroeconomy, which has been gloomy during November 2011," ACB Securities said. "We still keep recommending long-term investors to invest in stocks with good fundamentals."

Cris Sholto Heaton, an analyst for UK financial magazine MoneyWeek, wrote in an article Monday that a lot of the pessimism concerning the Vietnamese market is "overdone."

Heaton said the market is worth investing in now because of two reasons. "The first is that the government seems to be tackling the immediate problems and things should improve from here. The second is that nobody yet believes this, so the market is still very cheap," he wrote.

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