Hong Kong Shanghai Banking Corporation (HSBC) has released a new report, indicating reasons for the decline of Vietnam’s shares prices recently.
Experts from HSBC pointed out that Vietnam stock market index fell by 8 per cent in July and by 20 per cent since reaching a peak in March due to five main reasons.
1) Vietnam shares are standing at high prices. Despite corrections, the average PE ratio of stocks listed on the Ho Chi Minh City bourse is 31 times, compared with 37 times before experiencing corrections.
The prices are too high in comparison with an emerging market like Vietnam though the market is considered to have great growth potential.
HSBC forecast the PE ratio will be reduced to 18 by the end of this year, pulling the VN-Index to 900 points at that time.
2) HSBC said Vietnam will tighten its monetary policy. The country’s CPI rose 8.4 per cent in July, higher than GDP growth of 8.1 per cent in the first quarter. Therefore, the State Bank of Vietnam will increase compulsory reserves in commercial banks to curb inflation.
In late June, the State Bank announced to limit loans to securities trading from 7 per cent to 3 per cent at the end of this year in an effort to reduce superfluous liquidity. It means that securities investors will have to sell their shares to pay bank loans.
3) The delay of equitization process. Vietnamese PM has urged to review timing of IPO to control abundance of shares on the market, leading to price dilution. However, HSBC said that the move would harm investors’ confidence about the Government’s determination of reform process. This bank forecast there will be no big IPO by the end of this year, even in next year.
4) The failure of recent IPOs worried investors. The giant insurer Bao Viet could not sell out its shares in the share auction, while its shares fall sharply right after IPO. In addition, some new stocks listed on bourse depreciated 13-17 per cent.
5) Confidence of domestic individual investors in the market was dampened. The boom of local stock market in first months this year created a belief of a profit-making from securities trading. However, the doldrums in recent four months discouraged individuals.
Foreign investors continued to buy, but with a smaller volume. They bought a net of US$54 million of shares in July, compared with US$345 million bought in January.
HSBC experts maintained their viewpoint that Vietnam’s stock market index would move to 900-point level by the end of this year, and that they will hold shares for long term.
(VnEconomy)
Vietnamese
