Investors at a brokerage in Ho Chi Minh City. The stock market's development depends on the recovery of the economy, an expert says.
The VN-Index, which tracks 302 companies traded on the Ho Chi Minh Stock Exchange, posted the biggest loss among Asian indexes last year, slumping 27 percent, with many stocks battered down to below VND1,000.
But Le Khac An, head of investment at Tan Viet Securities Company, tells Vietweek that a recovery is not far off.
Vietweek: Foreign fund managers are forecasting a sharp recovery for Vietnamese stocks this year, especially since they have been the biggest losers in Asia and offer extremely good value at current prices. Do you agree with them?
Le Khac An: The stock market goes up and down. After a downturn, it will pick up again.
Not only foreign fund managers but also local investors are forecasting a recovery. Last year we didn't have a clear idea about when it would happen. But now it's happening. We are already looking at a recovery that will continue.
The VN-Index has jumped around 20 percent since Tet and trading volume is now large. Investor confidence is better too, as the stock market is still seen as an attractive investment channel.
Where do you see the VN-Index at the end of this year and at the end of 2013?
The index can hit 600, then go through a correction and settle around the 500 level [The VN-Index closed at 423.64 on February 29].
The stock market may have entered a new phase already. The main index will not rise much, just around 15-20 percent. But there will be a huge difference between stocks. Companies that operate efficiently and earn high profits will be in a league of their own and their prices can double or even triple.
Are you telling medium- and long-term investors to buy now or wait?
From a long-term point of view it's better to observe first because we are now at the beginning of the recovery and it would be hard to tell good stocks from bad. If investors choose to enter the market now, they can easily be influenced by the flow. They can make the wrong decision and be stuck with stocks of inefficient companies.
So investors should wait until the second half of the year when they can have a better picture of businesses and which companies they should invest in.
What sectors or stocks are you recommending?
A worried State Securities Commission Chairman Vu Bang has said the prices of many shares are down to the cost of just two onions.
The commission has completed a stock market restructure plan focusing on raising listing standards for firms, rearranging transaction tables, improving disclosure and dissemination of information, Bang said.
It also considers new products for the market.
Now I can say bank stocks have potential. Bank stocks have fallen for quite a long time, since 2009. They can provide investors high returns. But investors still need to be cautious and should only choose good banks.
For the long term, it's worth paying attention to consumer goods companies, especially those that have a strong foothold in the domestic market. Consumption is large and growing and these companies are good choices for long-term investors. Inflation may hurt sales of luxury products, but for fast-moving consumer goods the demand will be always high.
But why have prices of many shares plummeted, even to below VND1,000 (5 US cents)?
There are two main reasons. First is the weakness of the economy, and companies' poor operations, which cause losses. Share prices reflect firms' health.
The second is because some firms try to trick their shareholders. They issued shares en masse to raise capital between 2009 and 2010, but used the money for wrong purposes, not what they said initially. Maybe they used the capital to invest in property or some other risky assets, so many of them may face bankruptcy.
Many firms have considered delisting, and many investors have also deserted the stock market. What do you think about this?
Listed firms could delist when the market cannot act as a channel for raising capital for them. Meanwhile, their disclosure and accounting norms are much more stringent than for unlisted firms.
Firms that do not meet the criteria for listing in the stock market, like reporting losses for many years, will be delisted by the stock exchanges.
Investors expect profits, but the market has fallen relentlessly since early 2010, while inflation and bank interest rates rose. Investment in the stock market in late 2010 and early 2011 plummeted by a half to two-thirds.
When investors put money in the market, but gain no profits, and see no strong measures from the government to improve the situation, they will turn their back on the asset class. I think it is natural.
Which is the most attractive asset class now property, bank deposits, stocks, gold, or foreign currency?
Stocks are the preferred asset class besides deposits because of the frozen property market. Gold and foreign currencies are only a hedge against depreciation. It is difficult for investors to get big profits from gold and foreign currencies, since the world's leading banks also lose from trading them.
But there is also an opinion that we cannot expect the market to recover now. What do you think?
We have not seen further bad news about our economic situation, though no positive signs either. The economy will face many difficulties in the near future. The stock market's development depends on the recovery of the economy. So I think the market will recover gradually.
The market would see long-term recovery only when it develops gradually, not in spurts. Sudden growth could occur when speculators pour their money into the market. Then the market could also suddenly decline.