Stop cheerleading ailing stock market: senior economist

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Investors at a securities company in Ho Chi Minh City. A senior economist said the stock market's recent falls are hardly surprising given current economic uncertainties.

The stock market will flourish only when the economy stabilizes, according to Dr. Tran Dinh Thien, head of the Vietnam Institute of Economics.

In the meantime, he said, it's necessary to stop giving struggling investors false hopes.

In principle, the stock market should provide businesses with a means of raising funds. It should also serve as a gauge for the health of the nation's listed companies.

But many factors have prevented the market from serving as a reliable measure of economic performance, Thien said in an interview with the Vietnam News Agency published last week.

"Many companies have raised their assets by selling land at high prices," he said. "In fact, their production capacities remain the same. In addition, speculative trading remains widespread in Vietnam. Favorable information is often exaggerated to attract massive flows of money, which has created a virtual market without diligent supervision."

The VN-Index has tumbled 63 percent from its record 1170.67 in March 2007. This year alone it retreated 12 percent.

Thien said that while speculators have benefited from fluctuations in the market, many real investors have been dealt a major blow.

He also said that the market's recent falls are hardly surprising given the current economic uncertainties.

Thien insisted that such declines normally follow the "miraculous" booms that Vietnam experienced four years ago.

He added that being too optimistic and encouraging investors, who are facing difficulties, to be confident in the stock market right now could push them into a deeper economic spiral.

Relief efforts

During the government's monthly meeting, on July 1, Prime Minister Nguyen Tan Dung urged relevant agencies to draft measures for a sustainable and healthy development of the stock market.

During the meeting, Do Hoang Anh Tuan, deputy Minister of Finance, said the government would seek approval during the National Assembly's upcoming session to grant tax breaks to stock investors from August 1 to the end of 2012.

Accordingly, stock market players would be exempt from the 5 percent tax rate on dividends and the 0.1 percent tax on each transaction.

Last month, Vietnam's consumer price index saw the lowest increase since the beginning of this year. As a response, on Monday, the central bank cut the repurchase rate by 1 percentage point to 14 percent.

The move gave the most significant boost in Asia to the VN-Index, the country's largest stock index, on Tuesday. The gauge gained 1.3 percent during the day and closed at 431.03, the biggest gain in two weeks. It advanced 0.39 percent to 429.99 on Thursday.

"˜Too soon'

Experts warned that if interest rates ease too early, they will trigger inflationary pressures early next year.

"It is too soon to feel happy with the slowing inflation now. June is the second consecutive month that witnessed a drop in inflation, but Vietnam's inflation problems can't be measured in mere months or quarters," said Tran Dinh Thien in an interview with Tuoi Tre newspaper published on June 28.

Thien added that the government should not forget the lessons of 2010 when efforts to ease monetary policy followed a small drop in inflation. The relaxing of policy caused an immediate spike.

Fiachra Mac Cana, head of research at the Ho Chi Minh City Securities Corporation, said he was surprised by the recent cut in the repurchase rate on Tuesday.

"Stock investors seem well aware of the medium-term risks of a rapid unwinding of the current monetary policy," he said. "Hence the caution."

DELISTING FROM BOURSES A GROWING TREND

Investors were shocked in April when telecom firm SaigonTel (SGT) and mining company Saigon-Quy Nhon (SQC) announced plans to terminate their listings on the Ho Chi Minh Stock Exchange and the Hanoi Stock Exchange respectively.

The trend has been less unusual, of late, after companies like Vietnam Construction JSC No.11 (V11), Mekophar Chemical Pharmaceutical JSC (MKP), and Interfood Shareholding Company (IFS) declared similar plans.

In an effort to explain their delisting plan, Dang Thanh Tam, chairman of SaigonTel, said the move would help the company restructure its business in a stagnant market. Vietnam Construction JSC No.11 cited the same reason.

But Le Dat Chi, a Financial Investment professor at the Ho Chi Minh City University of Economics, called their explanations "unconvincing."

"A listed company can restructure its business without having to terminate its listing," he said. "The restructuring process will prove even more effective if helped along by the stock market players."

Some have said that companies that are currently delisting haven't revealed the true reasons for their plans.

Critics charge that these firms are looking to "escape" the information disclosure regulations that apply to listed entrepreneurs.

They have also said that companies working toward delisting may intend to wait for a strong rally in the stock market to float their shares again.

But Chi said such speculations may fail as investors will turn their back on companies that have caused them major losses.

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