Stock market looks up, all eyes on banking

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The stock market is responding to a combination of positive news after a sharp decline last year, experts say

Experts say Vietnam's stock market will continue to see an uptrend in the near future, with bank stocks being highlighted as top investment options.

Economist Le Tham Duong said the market is responding to a combination of positive news including a stable foreign exchange rate, a strong foreign capital inflow and the ongoing restructuring of the banking system.

He said many investors have turned towards bank stocks, which are now cheap, on expectation that profits of banks will remain high and the banking sector as a whole will improve.

The benchmark VN-Index rose 4 percent on Monday when the country extended trading hours to 2:15 p.m. for the first time on both exchanges in Hanoi and Ho Chi Minh City. That was the largest one-day gain since January 4, 2010, according to Bloomberg.

The index, which slid 27 percent last year, is among the best performing benchmarks in the world this year.

"All the supportive macro news have emerged, and how far the market can rise will depend on the size of real cash inflows," Nguyen Tuan, investment director of FLC Securities, told Reuters.

He said the index could reach 500 points in the near term.

Nguyen Hoang Long, director of brokerage at An Binh Securities, said on Tuesday that while stocks may have peaked in the short term and could start a correction period in the next week or two, they are, technically, "still on a medium upward trend."

Analysts at ACB Securities said they also maintained their bullish view on the current uptrend of the market.

"The returns on the stock market are more attractive than those on the gold market as well as deposit interest rates," they said. "As such, we are confident of prospective fund flows into the market."

Banking buzz

Vietnam aims to ensure liquidity and strengthen the banking system through mergers and acquisitions. The State Bank of Vietnam said last week that it may force mergers among weak lenders if necessary.

In another development, the Ministry of Finance is expected to buy collateralized bad debt from commercial banks to strengthen their balance sheets, Bloomberg reported.

An industry insider told Vietweek that some banks would combine voluntarily by the end of March, which he believed was a more viable option than being forced to merge by the central bank.

A banker in Hanoi who wished to remain anonymous said his bank is planning to buy another unidentified lender.

Meanwhile, VietCapital Securities said in a note Monday that restructuring with a "convoy" style, where larger banks would take weaker ones "under their wing", will strengthen the sector and benefit the stronger listed banks.

The company said bank stocks continue to attract interest as the sector has outperformed the market this year. The rumors of lower interest rates have also been fuelling investor interest in the sector, it said.

The central bank said Tuesday it would cut its benchmark interest rates by 1 percentage point and lower the maximum interest rate banks can pay for dong deposits to 13 percent in the "next few days."

Commenting on stocks in general, VietCapital Securities said market conditions are proving increasingly attractive to domestic investors. "As inflation abates and the economy stabilizes further, we believe that equity market could continue to impress this year.

"We think individual investors, having watched most of the rally from the sidelines, are looking to come back in"¦ As investors gain confidence that the economy is truly on the right track, momentum should pick up providing stronger support to the market," it said.

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