Local stocks are likely to rise next year on signs of an improved economy, but the rally will not be very strong due to uncertainties in the monetary market, experts say.
Le Xuan Nghia, vice chairman of the National Financial Supervisory Commission, said Vietnam's financial market has had to face many problems at the same time over the past several months, including a sharp decline of the dong against the dollar, a large gap between official and black-market exchange rates and fluctuations in interest rates.
The monetary market still poses risks to the stock market, he said, calling for the government to take more effective measures to solve the problems next year, once and for all.
Still, he predicted that the stock market will grow on the back of a stronger economy. Foreign portfolio investment in Vietnam has started to increase, though at quite a slow pace, and this trend will continue next year, Nghia told Thanh Nien.
The government has set an economic growth target of 7-7.5 percent for 2011, up from this year's 6.7 percent. A recent report by Standard Chartered Bank said the country will be a strong economic performer next year, with growth accelerating to 7.2 percent.
Le Dat Chi of the Ho Chi Minh City Economics University said the economy is likely to make giant strides in 2011.
However, as foreign exchange rates and inflation remain weaknesses in the economy, the government may continue leaning toward tight monetary policies. This means interest rates at banks will stay high, negatively affecting the stock market, he said.
With economic instability at home and slow growth in other countries, the stock market in Vietnam will not be able to see a really big boom in 2011, Chi said.
The VN-Index has fallen 7 percent so far this year. But local stocks began to gain momentum early this month, giving the benchmark index a boost it badly needed.
Despite the recovery, Chi pointed out that many investors were still cautious, focusing on just a few stocks over the past few weeks. He also warned that the market prospects for the second half of 2011 are still uncertain and investors should be watchful of market trends.
Experts said bank stocks, which have been in a rut for months, may regain the leading position it used to have before this year.
The government last week extended the deadline for local banks to raise their registered capital by one year to the end of 2011. Experts said that the decision, taken to ease the pressure on many banks struggling to meet the deadline, has started driving up bank stocks.
The central bank had previously decreed that commercial banks must have a minimum capital of VND3 trillion, triple the current requirement, by the end of this year.
Economist Le Tham Duong of the HCMC Banking University said the move will give local banks more time to meet the new capital requirements and increase their competitiveness. It can also help improve investor sentiment, he said.
Duong said he did not worry too much about the impact of high interest rates on the stock market. Even if banks continue to set their deposit rates at 14 percent per year, the stock market can still attract more capital from investors as long as the economy is stable, he said.
Some experts are less hopeful.
Nguyen Ngoc Truong Chinh, general director of HCMC-based Golden Lotus Securities JSC, said the decision to extend the deadline for capital hikes can create more doubts about the consistency of government policies. This could affect investor confidence in the long term, he warned.
Chinh also noted that the recent ratings cut by Moody's could also make foreign investors more reluctant to invest into Vietnam and its stock market in particular.
Moody's Investors Service last week lowered Vietnam's bond rating, citing several reasons including the risk of a balance of payments crisis, accelerating inflation and the weakening of the currency. The agency also downgraded six Vietnamese banks on the same concerns.