Following complaints that tightened credit has indiscriminately hurt the real estate sector, calls are being made for a policy stimulus for the stock market.
State Securities Commission Vice Chairwoman Vu Thi Kim Lien said the stock market is a reflection of economic conditions, even if it tends to exaggerate "the beauty or the ugliness" of the economy a bit.
She said the market is now in crisis and investor confidence remains low. To make matters worse, deposit interest rates are high and gold has recently regained its luster, prompting investors to ignore stocks, Lien said.
The securities commission has proposed that the government ease credit policies to rescue the market.
In order to bolster investor sentiment, the government needs to restore economic stability, tame inflation and lower interest rates, Lien said. At the same time, the State Bank of Vietnam should review lending regulations and allow strong banks to continue providing loans to stock investors.
The central bank, in an effort to control credit growth, has ordered commercial lenders to limit loans to non-manufacturing sectors at 16 percent of total credit, specifically mentioning real estate and stock markets.
Le Xuan Nghia, vice chairman of the National Financial Supervisory Committee, said it's unfair to apply the credit limit across the board and treat all banks equally.
Some banks that have good risk management practices should be given more room for credit growth than others, he said.
Nghia said money supply has been too tight, expanding by around 3 percent so far this year. That compares to the government's annual target of 16 percent.
Half of the new supply was invested in government bonds, leaving too little capital for the economy, he said, adding that it's not easy to lower interest rates amid high inflation.
Nghia also feared that many fund managers could withdraw their investments soon. A lot of funds were set up between 2005 and 2007 and their terms will end in 2012 or 2013, which means there's a chance capital worth VND30 trillion could be withdrawn from the market by then.
"It will be very dangerous for the stock market if investors refuse to launch new funds and the economy stays gloomy," he said.
Local fund manager SGI Capital estimates that more than VND63 trillion could leave the market within the next four years. Many funds are under pressure to exit, and not just because their terms will end soon. According to SGI Capital, many funds have seen their net asset value fall sharply due to market declines.
The benchmark VN-Index has slipped 16 percent this year. The Asian Development Bank said the Vietnamese stock market lost the most in the region, while other markets remained at above pre-crisis levels.
Louis Nguyen, CEO of Saigon Asset Management, said there are now incentives for fund managers to withdraw their investment.
If annual inflation hits 20 percent this year and interest rates don't fall, it's hard to convince investors to stay in Vietnam, Nguyen said.
Vu Viet Ngoan, chairman of the National Financial Supervisory Committee, said last week that interest rates cannot be lowered now as controlling inflation is still the priority.
Economist Le Dat Chi of the Ho Chi Minh City Economics University said investment funds should take advantage of the market slowdown, instead of seeing it only as an obstacle.
He said fund managers with a vision should pour more money in the market now. Vietnam, as an emerging market, will offer an opportunity of high returns once the economy pulls through these tough times, he said.