
Will the hot market crash and burn? (10/01)
06/08/2010 - 198 Lượt xem
Securities trading floors are crowded. Stockbrokers are busy keeping up with heaps of new investor applications to open trading accounts. Trading systems are jammed with buy orders. New listing are lengthening the tickers at both Ho Chi Minh City and Hanoi exchanges. The announcements of winning bidders in some recent share auctions have even been delayed due to the huge number of bidders. The market seemed so overwhelmed as it welcomed the New Year that it made a slight correction from its record high in mid-December.
The main board’s barometer VN-Index closed at the end of the last trading session of 2006 at nearly 752 and quickly bounced back during the New Year’s first week. The VN-Index closed last week at 817.39, exceeding its high of 809.67 recorded on December 20, 2006, an astonishing rise from the 306 marked on the last trading day of 2005.
Investor enthusiasm during the last months of 2006 pushed total market capitalisation of the 106 listed shares to $9.2 billion, according to statistics from Vietcombank Securities (VCBS), well beyond the $8.2 billion mark anticipated for the year by the State Securities Commission. The VCBS also reported that the total value of listed bonds hit $3.6 billion while investment fund certificates have totalled $154 million.
The Hanoi bourse also saw a robust year, soaring 170 per cent throughout 2006 to close at 243, buttressed by 87 listed stocks and 91 bonds. The government must be tinkled pink to see the total market capitalisation at both the Ho Chi Minh City and Hanoi exchanges hitting $13.8 billion, a figure proportionate to about 25 per cent of Vietnam’s GDP in 2005. In the other words, the market has already achieved the 2010 target of 15 per cent of GDP.
Another bubble?
Despite such encouraging figures, mumbling abounds over whether the market’s rapid growth is sustainable. Taking into account the seemingly overvalued prices of a handful of so-called ‘blue chips’ and bearing in mind the trauma of the market contraction that began in mid-2001 and saw the market lose 72 per cent of its total capitalisation by September 2003.
“Is the market about to see another burst bubble? Will it crash and burn like it did in 2001?” asked a group of South Korean investors at an investment opportunities seminar held last month in Hanoi.
Local authorities share the Koreans’ concerns. Right after the VN-Index hit its 809-point record, the director of the Ho Chi Minh City Securities Trading Centre alerted investors to the danger of overheated values.
Referring to the VN-Index’s 633.05 points just 20 days earlier and an average P/E (price-to-earnings) ratio of 38.18 compared to common levels of 15-17 in most overseas markets, Tran Dac Sinh pointed out that rapid “price increases mean investors are exposed to [a potentially] big correction.”
The market plunged in the few days following the publication of Sinh’s remarks in the local media, despite no major changes in companies’ reported business results.
Even before the market’s wild ride in the last two months of 2006, widely attributed to the catalysts of Vietnam’s hosting of the APEC summit, admission to the WTO, and the US approval of the permanent normal trade relations (PNTR), Garry Evans, an HSBC pan-Asia equity strategist, published a report in early September 2006 entitled Vietnam Equities - Time To Go In, which said that the Vietnam market had been very volatile since it opened in 2000 “and not least this year”.
Evans added: “With little information on earnings, the market is very much driven by sentiment and momentum... The lack of liquidity means that, when foreign funds start to sell, the negative impact is exaggerated. The resultant correction causes local individual investors to panic, exacerbating the fall.”
Foreign investors’ actions are still a widely respected signpost of likely market directions. Once they sell, local investors - most of whom are speculators, observers believe - are likely to follow suit.
Indeed, in the final trading sessions of the year, a lot of market participants blamed the plunging indices on the absence of foreigners who were taking their Christmas and New Year holidays. “The market will act much differently when they return after their holidays,” said an investor at the Incombank Securities Co.
Nguyen Quang Vinh, director of the Bao Viet Securities Co, estimated that 70 per cent of investors in Vietnam’s stock market were acting with the herd mentality.
An increasing problem is that, with foreigners limited to owning only 49 per cent of stocks in many enterprise under existing rules, with banks and some other companies capped at an even tighter 30 per cent, most listed companies considered attractive for investment do not have much room remaining for foreigners to climb aboard.
Sacombank, as cited by HSBC’s Garry Evans in another updated report, dated November 22, is an example. By the day his report was released, the second largest stock on the Ho Chi Minh City bourse had reached its foreign ownership limit of 30 per cent.
The chairman of the South Korea-based Golden Bridge Financial Group, Ly Sang-jun, who launched his first $19 million Vina Blue Ocean Fund in late December to test the Vietnam waters, compared what has appeared in the Vietnam stock market with the glitter seen in the Hong and Saigon rivers on beautiful days. “All that glitters is not gold,” he told VIR after the fund-launching ceremony.
Still attractive
While it remains difficult to anticipate whether exchange screens will turn red in a large correction or stay chiefly green, the Vietnam equities market is still widely viewed as an untapped gold mine, and government bonds are considered increasingly attractive.
“We continue to see this market as one of the most exciting in Asia,” Evans told a forum of institutional investors gathering for Vietnam Corporate Days in Singapore in November 30 and December 1.
Evans suggested that it was time for institutional investors to go into the Vietnamese equities market due to “a number of attractions.”
“Even if the Vietnamese market is still too small for most institutional investors to be able to gain meaningful exposure, we believe that many will want to at least become familiar with its dynamics and to start to dip their toes into the water by opening a trading account and buying a few stocks,” he said.
“Over time, Vietnam’s market should grow to reach a percentage of GDP similar to that in other Asian countries,” he continued, noting the average of 71 per cent in the Philippines, Thailand and Indonesia.
“In five years’ time… it [Vietnam’s market] would reach $55 billion. That would still be smaller than Indonesia’s current market cap of $102 billion but Vietnam’s growth rates would probably make it an interesting market for international investors,” he concluded.
It’s not only words. Institutional investors have shown growing interest in Vietnam, attracted by the country’s impressively steady growth rate of 8 per cent per year, the stable socio-political environment, the young labour force, the improved business environment and a demand for investment capital of $140 billion between now and 2010 to cater to the high economic growth.
At least a dozen institutional investors with total assets of over $2 trillion under their management belts were involved in the HSBC-sponsored Vietnam Corporate Days. Templeton, Credit Agricole, Blackriver, Artesian Investment, Daiwa, DBS, Treeline, JF, JL Capital, UOB and Wardferry were among the interested institutions.
“Just 1 per cent of this amount invested in Vietnam would double the current market capitalisation,” commented Nguyen Quoc Sy, HSBC Vietnam manager for domestic business and commercial banking.
Gordon Tek Yock Ren, executive director of Singapore-based Marquee Capital told VIR on the sidelines of the Vietnam Corporate Days that his investment fund was looking for opportunities to invest in the Vietnam capital market after being successful in China and some other regional markets.
Although keeping the intended investment amount undisclosed, he said he was “particularly interested in Vietnam now”.
Golden Bridge was also planning to funnel multi-millions of dollars into Vietnam later this year if the first test fund was successful, said Ly.
Bum Jin-song, head of the Vietnam business planning team at Korea Investment & Securities Co, Ltd told VIR his fund management company has gathered $400 million “ready for investment in Vietnam” with $100 million already invested.
“Many major investors in South Korea now desperately want to access the Vietnam market given the current interest rates of 4-5 per cent in the South Korean market which are not attractive. And among the alternative markets they are looking for, Vietnam is the best,” he said.
Evans pointed out that another $1.8 billion had been raised recently by a series of country funds looking to invest in Vietnam, creating a factor to propel the market further in the next couple of months.
The director of the State Bank of Vietnam’s Banking Development Strategy Department, Le Xuan Nghia, observed that large foreign institutional investors were coming to Vietnam. “Most of them aim at strategic investments and expect long-term profit,” he told VIR.
The growing interest of foreign institutional investors has provided strong support to local investors’ confidence and helped bolster market development as well as prevent a dramatic price nose-dive, experts say.
“A [sharp] price fall is nearly impossible despite a sharp increase in the supply side with new stocks continuously being listed,” Nguyen Ngoc Canh, head of the State Securities Commission’s International Relations Department told the South Korean investors at the Hanoi investment opportunities seminar.
Canh pointed out the involvement of foreign institutions had made the stock market far different from what it was five years ago.
“During the 2001-02 period, most investors were individuals and large foreign institutions remained absent,” he said.
Vietnam International Securities Co CEO Vu Bao Quoc told VIR, “the market is even more attractive at present”.
“All key indices, services, products and market participants are showing a rising trend. Being aware of that, the government has enabled more participants to come in and to drive the market up,” he remarked.
The government has planned to raise foreign ownership limits in listed companies from the current 49 per cent to 100 per cent, with exceptions being businesses in some sensitive industries like banks, telecoms and natural resources. It has also altered the target of market capitalisation to GDP ratio to 25-30 per cent by 2010.
“We will do our best to secure the stock market’s steady development,” said Pham Viet Muon, deputy head of the Government Office and acting vice chairman of the Standing Committee for SOE Reform and Equitisation, told investors at the Vietnam Corporate Days in Singapore.
“[Investors] are witnessing an unprecedented chance to invest in the Vietnam stock market,” he said.
Source: Vietnam Investment Review
