Early rally raises expectations for stock market reforms

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Restructuring efforts should provide badly needed boost, finance minister says

Investors watch index screens at a brokerage house in Hanoi. There are expectations that the stock market will soar in 2012.

Finance Minister Vuong Dinh Hue is confident reforms planned for the stock market in 2012 will provide the serious boost it really needs after a bad year.

The market will pick up in 2012 as a series of restructuring measures will be taken, Hue said.

He said the first step is to redefine the stock market as the major provider of medium and long-term capital for the economy, so that banks can step back and focus on supplying short-term funds.

"Since credit will continue to be tightened, the stock market has a great chance to become the capital channel for businesses," he said.

A plan to merge the country's two stock exchanges will be submitted to the government in the second quarter, the minister said, adding that a new national bourse will be more professional and effective.

Necessary amendments to the Securities Law will also be made while the authorities reorganize securities brokerages, Hue said.

He said a plan to develop the stock market through 2020 will be announced soon.

"I think with all these aggressive and concerted actions in 2012, the year of economic restructuring [...], the market will overcome this difficult time, stabilize and improve," he said.

"Despite having gone through a tough year in 2011, the stock market is starting 2012 under favorable conditions," Chairman Vu Bang of the State Securities Commission was quoted as saying in Tuesday's Thoi Bao Kinh Te Vietnam newspaper.

Bang said inflation has eased and the economy is being restructured. As the economy gets better and follows a more sustainable path of growth, the stock market will be able to play a more important part, he said.

The optimistic predictions came after the long holiday break for the Tet. Viet Capital Securities said brushing aside a general wave of pessimism and drop in major Asian indices, the Vietnamese stock market rallied on Monday, the first trading day of the Year of the Dragon, thanks to renewed investor confidence following a long holiday.

The VN-Index ended January at 387.97, the highest close since December 6. The gauge rose 10 percent during the month, the best January performance since 2007, according to Bloomberg.

Viet Capital said the index could rise 20 percent to reach 420 this year. It slumped 28 percent in 2011.

Analysts at ACB Securities said Monday that although the economy is still facing great challenges, they believe in fundamental improvement of the economy and gradual recovery of the equity market.

However, they noted that the market now depends on foreign investors, as the domestic demands tend to be weak right after Tet.

Even though most economic indicators are now supporting the equity market's short-term uptrend, which started one week before the Tet holiday, cash inflows are still the major issue at this moment, they said. "The total deposits might not increase steeply until March 2012. In other words, the lending interest rate might not decrease remarkably until the end of the first quarter. This strongly limits the short-term uptrend potential of the equity market."

Hanoi-based Thang Long Securities advised investors to tread carefully.

According to the company, there are expectations that the stock market will soar in the new year with changes in the State Securities Commission and the Ministry of Finance's policies.

"However, we believe that the restructuring of Vietnam's financial system is a long-term story. Investors should be cautious and wait for the clearer results from this restructuring," the company said in a note.

The Ho Chi Minh Stock Exchange on Monday released the VN30 index which includes the 30 largest stocks, accounting for 80 percent of the market capitalization and 60 percent of the total trading value.

The new index the second of the exchange after the benchmark VN-Index will make its debut on February 6. It is expected to help investors track market trends more easily and pave the way for derivatives in the future.

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