VietNamNet Bridge – A ray of hope on the recovery of the stock market has been flashed when the stock prices increased significantly continuously in the trading sessions in September. However, with the big difficulties still existing in the national economy and the worries about the increasing public debts, this is just a faint hope.

The “artificial wave” on the market

The last trading session of the third quarter of 2011 ended with the VN Index at 427.60 points, an 11.77 percent decrease in comparison with that at the beginning of the year. Meanwhile, the HNX Index, the indicator of the Hanoi bourse, stood at 71.34 points, a decrease of 37.53 percent. As such, Vietnam is one of the markets which witnessed the sharpest decreases in the world.

The indexes did not surprise anyone, as all macroeconomic indicators all show the difficult conditions. The consumer price index (CPI) has been increasing sharply month after month, reaching its peak at 23.02 percent in August, exceeding the 2008’s record inflation rate.

The high inflation rate has pushed the bank loan interest rate up, while banks face liquidity problems. The dong/dollar exchange rate has been stable for the last two quarters, but risks latent. The economic growth rate in the first nine months of the year was 5.76percent, which is much lower than the targeted level of 7-7.5 percent.

Meanwhile, businesses, the backbone of the national economy, have been reportedly performing badly. 54.21 percent of companies, which list their shares on the stock market, have reported decreases in business results, while 12.92 percent of enterprises have reported losses.

After seven months of implementing the Resolution No 11, the macro economy has not seen much improvement, which experts believe is the main factor discouraging securities investors. The lower credit rating and the falls in the competitiveness rate both also caused worries to international investors. That partially explains why foreign investors’ net purchase was only 2000 billion dong in the first nine months of the year, just equal to 12 percent of that in 2010.

In fact, in the first three quarters of 2011, the stock market witnessed some waves of stock price increases, but experts said these were all caused by the psychological feelings or controlled by ETF (exchange traded funds). The VN Index reached its peak of 522.59 points on February 9, 2011, and the wave seen in late April 2011 was reportedly created by the trio of BVH, MSN and VIC.

The market two times witnessed recoveries in the last nine months. The first wave occurred from May 25 to June 12, after a big amount of money was poured into the market on purpose and the Circular No 74 was issued. However, the macroeconomic uncertainties and the shocks of the world’s stock markets, once again, made the stock prices fall.

The second wave occurred on August 16 - September 13, after the State Bank put forward a series of drastic measures to force the interest rates down.

Difficulties still “lurking”

Some months ago, an expert from a well known securities company said that he believed the VN Index would exceed the 500 point threshold by the end of 2011, and it may exceed the 650 point threshold by mid 2012.

The prediction was given at the time after the State Bank put forward a lot of policies to ease interest rates, which was believed to help encourage investors.

However, the credit tightening policy has not brought the desired effects. The low deposit interest rates have caused problems to banks’ liquidity, even though the State Bank has pumped more than 20 trillion dong to the circulation through the open market.

Meanwhile, foreign investors’ patience is being challenged. In September 2011, foreign investors’ net sale reached 1200 billion dong, while the sold products were mostly blue chips including VIC, HAG, FPT and DPM. The tendency is thought to continue in the time to come, if the public debt crisis in Europe and the US has not been settled.

Source: TBKTSG