Market may pitch year end curve ball

The VN-Index last week closed at 449.71 points on September 24, having moved sideways for several weeks after falling 19 per cent from 2010’s high of 551.40 points on May 6. In the year to date, the VN-Index has lost 11 per cent.

Vo Tri Thanh, vice head of the Ministry of Planning and Investment’s Central Institute for Economic Management (CIEM), said the market in the last two months of this year could witness a bull after domestic macro policy and the global economic recoveries became clearer.

He said Vietnam’s stock market had moved in a tight range for several months as investors’ confidence had been seriously hurt by “sudden” policies.

The central bank’s Circular 13 on safety ratios for credit institutions, effective from October 1, for instance, threatens to restrict bank credit expansion.

“The key answer here is improving investors’ confidence, which will trigger money flows into equities,” Thanh said.

He noted there would not be any breakthrough soon as several moves had already been made to ensure macro stability. “However, for medium to longer view investors, the last two months of the year would be a good opportunity to buy Vietnamese equities,” said Thanh.

Nguyen Quang Thuan, chief executive officer with the financial media company StoxPlus Corporation, however, said he saw few “bright points” for the domestic stock market by the year’s end. “Trade balance and exchange rate risks continue to be major pressures for policy makers,” Thuan told VIR.

Thuan said that besides the trade deficits and forex risks, interest rates remained high which explained why listed firms favoured issuing more new shares to raise capital.

The huge capital reverses from state groups also raised concerns over oversupply.  As of August 28, over 200 listed firms had announced plans to sell new shares and by the year’s end around VND48 trillion ($2.5 billion) would flow to equities market to absorb the new shares. In the first eight months of this year, listed firms issued shares worth VND23.4 trillion ($1.2 billion), according to StoxPlus data.

A bright point was investors could hope several listed firms might postpone or cancel new share issuances due to unfavourable market conditions, said Thuan.  

“Another bright point is that listed firms’ earnings per share (EPS) could still grow positively, estimated at around 10 per cent on-year for 2010, which make Vietnamese equities relatively attractive against some regional peers,” he said.

With the cautiously estimated EPS growth, Vietnam’s 2010 forward price to earnings ratio is now just around 11, compared to Thailand (12) and the Philippines (15).