No stock market recovery on the horizon: experts

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  Investors follow share prices on a screen at an ACB Securities branch in Hanoi. The VN-Index has lost around 20 percent from its May 8 peak. Photo: AFP

Investors are losing their confidence in the stock market as local companies are weak and lack transparency, analysts and fund managers say, warning that a recovery is unlikely to come next year.

Companies in Vietnam tend to expand into too many business activities, making themselves less competitive than foreign rivals and thus less appealing to investors, said Viasa Investment Fund Chairman Alan Phan.

The trend towards non-core sectors has left the country with a lot of weak firms that are avoided by investors, he said.

Vietnam's stock market has to change to grow from here, and the first improvement should be in the quality of listed companies, Phan said at a conference organized as part of the so-called "Stock Market Festival" in Ho Chi Minh City last Friday.

There is hardly any sense of festivity in the market now, after stocks plunged over concerns about the financial industry and the recent arrests of senior banking executives.

Police arrested Asia Commercial Joint-Stock Bank's co-founder Nguyen Duc Kien on August 20 for allegedly "conducting business illegally" and then detained former Chief Executive Officer Ly Xuan Hai for alleged economic mismanagement.

A report dated September 15 from the UK-based Economist Intelligence Unit said that the arrests at the bank, one of the country's largest, undermined investor confidence.

"The whole episode reminded investors that after years of sloppy management and exuberant lending, Vietnam's banks are in dire shape; and that corruption and waste pervade the economy," it said.

Louis Nguyen, CEO of Saigon Asset Management, said listed companies are required to be transparent, but in Vietnam business executives care more about their own interest than sharing information with stockholders.

When investors have little faith in the managers of a company, it is very difficult to attract investment, he told the conference.

While the market has, to some extent, improved from a 27 percent slump in 2011, overall sentiment is weak, with companies delaying listing plans and brokerages reporting huge losses.

Vietnam's VN-Index has lost around 20 percent from its May 8 peak as earlier momentum, which made the market one of Asia's best performers in the first few months of the year, has not been sustained. Since August 20, the benchmark stock index has dropped 10 percent as bank shares fell.

Rong Viet Securities said Tueday that long-term prospects for the market are still positive. "Where traders find nightmares, long-term investors see heaven. Looking several years into the future, investors can now start to accumulate stocks," the company said in a report.

"Good prices are important yet sound fundamentals should be the number one criterion," it said.

Slowdown?

Official data show Vietnam's gross domestic product grew 4.38 percent in the first half, compared with 5.63 percent a year earlier.

ANZ said in a note on Monday that credit growth has not rebounded even after the central bank cut its policy rates by five percentage points this year, possibly due to the rising level of non-performing loans in the banking system. "The lack of credit will in turn limit GDP growth," the bank said.

Consumer prices climbed 6.48 percent in September from a year earlier, after rising 5.04 percent in August, the General Statistics Office said in Hanoi Monday. Prices gained 2.2 percent from last month, the most since May 2011, Bloomberg reported.

According to ANZ, rising inflation momentum will limit the central bank's scope to ease monetary policy further. "Focus will then have to be on how policymakers can remove the bad loans from the banks' balance sheets and in doing so, spur lending."

Pham Ngoc Bich, managing director of institutional sales at Saigon Securities Inc., said his company just received a group of foreign fund managers looking for investment opportunities in Vietnam. The group, overseeing a combined US$500 billion worth of funds, is concerned most about how stable the dong can be, he said.

Foreign investors in Vietnam have to convert their dollar assets into the local currency, so a weakening dong means they will risk facing losses when they want to divest from the country later, he said.

Even though the exchange rate has remained stable this year, Bich said the dong could fall if the government has to inject more money into the market to solve the country's bad debt problem.

Professor Le Dat Chi of the Ho Chi Minh City Economics University said, in the long run, listed companies have to "improve themselves" to drive their stocks up, but for now the market will stay down due to poor economic conditions.

Prospects for the global economy are not good as the US and EU are expected to face more difficulties and recent stimulus measures taken by countries around the world have yet to take effect, Chi said.

Vietnam's economy will be affected by the global slump, and businesses in the country are highly indebted, he said.

Under these circumstances, the stock market recovery that many investors are wishing for will not happen, he added.

"Many people had assumed that the economy will pick up in 2012 or 2013, but that is just groundless," Chi said in a VnExpress newswire report, adding for good measure that investors should brace for worse things to come.

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