Vietnam's stocks tumbled the most since November 2009 after the government said it will raise electricity prices by a record 15.3 percent, spurring concern the government will step up measures to curb inflation.
The Ho Chi Minh City Stock Exchange's VN Index slumped 4 percent, the most among Asian benchmark gauges today, to 483.68 at the end of trading. The gauge's drop was the biggest since Nov. 26, 2009, with 253 of its 280 members falling. The government will increase electricity prices by 15.3 percent starting on March 1, Hoang Quoc Vuong, deputy minister of trade and industry, said in a text message today. Vuong confirmed that the price hike is a record for Vietnam.
The increase may fuel inflation that's already at a 23-month high and add to pressure for higher borrowing costs after the central bank raised last week the refinancing rate at which it lends to commercial banks. Four currency devaluations in 15 months and surging commodity prices have driven up the cost of energy imports.
Increasing power prices is "a move that coupled with the recent devaluation will surely add great pressure to an already galloping inflation," Michel Tosto, director for institutional sales and brokerage at Ho Chi Minh City-based Viet Capital Securities, wrote in an e-mail Monday. The market tumbled "thanks to a toxic mix of currency devaluation, high inflation and perceived inaction from the government," he wrote.
Regulators devalued the dong on Feb. 11 in an attempt to curb the trade deficit. The country posted a shortfall of $12.4 billion in 2010. Vietnam's inflation rate reached 12.17 percent last month, the highest level since February 2009, data from the statistics bureau released in Hanoi on Jan. 24 show.
Credit growth target
The central bank raised the refinancing rate on Feb. 18 to 11 percent from 9 percent. Prime Minister Nguyen Tan Dung on Monday said he would approve lowering this year's credit growth target to 20 percent from 23 percent, according to online newswire VnExpress, citing central bank Governor Nguyen Van Giau. Three telephone calls to the governor's mobile phone weren't answered.
"The hike in refinancing rates, electricity prices, and a possible increase in fuel prices, will all add more costs to companies and affect their production," said Hoang Thach Lan, a Ho Chi Minh City-based analyst who heads the brokerage unit at the Mekong Housing Bank's MHB Securities Co. "All these show that the government has started pursuing tightening monetary policies and that will slow economic growth."
Bao Viet Holdings, Vietnam's biggest insurer and the VN Index's biggest constituent by market capitalization, slumped 4.7 percent to VND90,500. Masan Group Corp. fell 2.3 percent to VND87,000. The food and financial services company is the stock index's third-biggest member.
Vietnam needs "a broader set of policies to restore macroeconomic stability," Benedict Bingham, the IMF's senior resident representative in Vietnam said on Feb. 11. "Monetary policy will need to focus more decisively on containing inflation, and fiscal policy will need to be put on a clearer consolidation path to contain public debt."
Moody's Investors Service cut Vietnam's credit rating to B1 from Ba3 on Dec. 15, citing the risk of a balance of payments crisis and Vietnam Shipbuilding Industry Group's "debt distress." The country's largest shipbuilder, known as Vinashin, missed a payment on a dollar-denominated bank loan on Dec. 20.
"Markets need clear and strong action and we're not getting this at the moment," Viet Capital's Tosto wrote in his e-mail Monday.