VN-Index losing streak ended in August with a 4.7 percent increase
Vietnam's stock market began to pick up in August, after the VN-Index fell nearly 20 percent in the first seven months of the year
The economy is getting out of the woods and there is likely a chance of recovery for the stock market if it can attract new foreign cash flows, a financial official said.
A group of major institutional investors led by JP Morgan is expected to come this month, looking for opportunities in the local market, said Le Xuan Nghia, vice chairman of the National Financial Supervisory Commission.
"These investors are mainly interested in indirect investments in Vietnam via the stock and real estate markets," Nghia was cited as saying in a report in Dau Tu Chung Khoan (Securities Investment) magazine on Monday.
The stock market could be revived if the government takes strong and timely measures to tap this capital source, he said.
Nghia believed Vietnam's economy has already gone through the most difficult times.
While there are still challenges, including high interest rates and a large public debt, the economy is picking up and there are positive changes in management as well, he said.
Nguyen Van Binh, who became governor of the State Bank of Vietnam last month, told local media that the order in the financial market has to be restored. He said right now banks are trying to attract funds at all costs, leaving little capital for the stock market.
Nghia said he supported the new central bank's approach that the stock market, unlike the banking system, is a capital source for the long term, and it's necessary to make sure it plays that role. For many years the market has failed to do an impressive job, he added.
The National Financial Supervisory Commission will propose a series of measures to boost the market, including a higher ownership limit for strategic investors at high-performing firms and a proposal to speed up share sales at state-owned companies. There should be more products for foreign investors to choose from, Nghia said.
In one of the first attempts to reform the market, the State Securities Commission introduced stocks margin limit trading, allowing securities companies to lend up to 40 percent of the value of equity purchases to investors, the stock regulator said in a statement Tuesday.
"We aim to regulate lending practices at securities companies and help them to have better risk management," Vu Bang, chairman of the stock regulator, told Bloomberg.
Vietnam's stocks ended August with five consecutive increases, after the central bank signaled it will lower interest rates and the government cut the price of oil products by as much as 2.3 percent. The stock gauge VN-Index gained 4.7 percent last month, the world's second-best performer after Venezuela's key index, data compiled by Bloomberg show. That compared to a nearly 20 percent decline in the first seven months of the year.
"A reduction in interest rates would boost inflows to the market," said Nguyen Duy Phong, an analyst at ACB Securities Inc. in Ho Chi Minh City. "The cut in the petroleum prices will help ease inflationary pressure, giving investors an optimistic outlook on the macroeconomy."
The company said the central bank's decision to raise the required reserve ratio on dollar deposits by one percentage point will lend a hand to assure the dong's value, and maintains investors' confidence on investments denominated in Vietnamese dong.
"We maintain our bullish view on both exchanges, especially as the technical indicators show a strong demand, reflected by volume and value," ACB Securities said in a note Tuesday. "Large cap stocks continue to be the leading group with the strongest advance. However, if the macroeconomy becomes more stable and the market goes on upward, mid and small cap stocks may, in turn, jump further."
But some analysts are not too optimistic about a turnaround, at least not yet.
According to Thomson Reuters' data, the buying in August was almost entirely local while foreign outflows were large, totaling $1.7 million.
"So far no fresh foreign cash flows have entered Vietnam, which is still a risky place in the eyes of foreign investors," said Trinh Hoai Giang, deputy general director at Ho Chi Minh City Securities.
The nation's stocks were given an "underweight" rating in new coverage Monday by Credit Suisse Group AG, which cited the risk of economic "instability" from a stimulus-driven credit boom.
"Equity prices are likely to underperform the region on the back of macro and financial system instability, disappointing earnings, low domestic appetite for stock investments and slow market reform," Karim P. Salamatian, an analyst at Credit Suisse, wrote in a report dated Monday.