Increased supply could hurt stock market, analysts warn

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The upcoming listing of more shares will benefit investors in the long term but for now it will lead to a glut that may hurt the market, analysts warn.

Nguyen Viet Hung, a senior investment analyst at Hanoi-based SME Securities, told Thanh Nien that a more diverse variety in supply will help the stock market in the future because more choices for investors can translate to more investment.

But he said he's not optimistic that there will be any strong rebound in the short term "as ample supply will affect trading on the market, at least until the end of the third quarter this year."

"Investors should be cautious when capital flows to the market do not recover or weaken," he said.

More than 1.3 billion shares and fund units are waiting to be listed on the Ho Chi Minh Stock Exchange, Vietnam's main bourse. Among companies that have been approved or are pending approval for listing are Hanoi-based Military Bank with 530 million shares and Vietnam Ocean Shipping JSC with 140 million shares

 

The government has required commercial banks to raise their registered capital to at least VND3 trillion by December this year, triple the current minimum level of VND1 trillion. More than 20 local banks need to increase their capital and analysts expect them to issue shares for that purpose in the coming months.

Economist Dinh The Hien said it is inevitable that more companies are listed and more shares issued. The important thing is the gap between supply and cash flow into the market should not grow too large, he said.

"We can hope that in this quarter the State Bank of Vietnam will encourage lenders to increase capital supply for the economy and lower deposit interest rates," he said. "Even if the capital does not directly flow into the stock market, it can help boost investor sentiment. Besides, when banks cut their deposit rates to around 8-9 percent a year, the market will be able to attract more investors."

Vietnam stocks were Southeast Asia's worst performers in the first seven months, according to PXP Vietnam Asset Management. The Ho Chi Minh City Stock Exchange's VN-Index fell 0.1 percent to 486.21 at the 11 a.m. close on Thursday.

While PXP Asset has forecast that the gauge will climb as high as 700 at some point this year, other securities firms are not so hopeful.

ACB Securities said Tuesday that investments have not returned to the market as "buyers were hesitant after learning a billion shares were waiting to be listed."

There is a low probability that the VN-Index will go over the "resistance level" of 496-500, the firm said.

According to a market report published Tuesday by Habubank Securities, the probability that VN-Index will fall and test the level of 480 points is high as "the cash flow has shown no signs of entering the market."

"We retain our cautious point of view that investors should avoid trading at the moment," analysts at Habubank Securities said in the report.

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