MF wary of Vietnamese stock market boom

MF wary of Vietnamese stock market boom

The International Monetary Fund has urged Vietnamese authorities to keep a tighter grip on the stock exchange to curb its recent volatility.

In recommendations sent to the State Securities Commission, it has called for increased measures to limit risks in the securities market, particularly in relation to commercial banks that accept stock as collateral for loans. In principle, only banks with sound risk management regimes and qualified staff should be licensed to accept securities. The State Bank of Vietnam should squeeze monetary policy and cap banks’ lending. The central bank should also be more flexible in managing the dong, allowing its value to fall if needed. The government should try to improve transparency to ensure the reliability of the stock market, and strictly enforce regulations on public disclosure of information. Insider trading should be harshly punished. The government’s efforts in the past to manage the overheated market were appropriate. These included capping lending against stocks by commercial banks and keeping a close eye on foreign funds. The P/E ratio (price-to-earnings) of the Vietnamese stock market is very high compared to the global average. For the 20 largest firms on the Ho Chi Minh stock exchange (accounting for 99 percent of the market capitalization) it is 73 in January against a world average of a mere 16.4. The rapid growth of the market has been prompted by optimistic forecasts about the Vietnamese economy and the country’s recent WTO membership. This has also led to growing foreign portfolio investment since November but many shares are overvalued. The indirect investment has also created a current account surplus, which could easily become a deficit when demand for imports increase due to WTO-fuelled tariff cuts. Market view Vietnamese stocks lost steam Thursday with the index falling by 1.29 percent after several days of gains. The VN-Index fell by 14.62 points to 1123.07 with analysts attributing it to the IMF’s warnings to the government. Volumes too were down as 41 stocks gained, 46 lost, and 22 remained unchanged. Sacombank led in terms of both volume and value while IT company FPT was the top loser, shedding VND17,000 to close at VND615,000. Foreign investors bought into some big companies like Pha Lai Power Joint Stock Co. and petroleum industry services supplier, PVD, and sold heavyweights like dairy firm Vinamilk and Vinh Son – Song Hinh Hydropower Plant. They were net sellers to the tune of VND99 billion (US$6.2 million). The Hanoi market too lost, with the index falling by 5.66 points to 424.68. Reported by Hoang Ly – Compiled by Dong Ha