Stock Market Outlook 2008: Brighter Prospects?

The Vietnamese stock market ended 2007 after many shifts. Overheated growth did not happen in 2007 as in 2006. Although the market had significant development, the movement in the second half of 2007 caused experts and investors to review their assessments.

 

From the first trading day of 2007 (January 2) to date, the stock market experienced sine-shape movements. From January to March 2007, the VN-Index peaked at 1,170.67 points (March 12) after a steady rise. Then, the market was on a downtrend for the next four months to bottom out at 883.9 points on August 6. By the end of August, the market rallied and then cooled down until the year end. In total, more than 2.3 billion securities were traded at a combined value of VND193,000 billion (US$12 billion) on the Ho Chi Minh City Stock Exchange. As of end 2007, 112 companies were listed on HOSE with a listing value of over VND13,140 billion and market capitalisation exceeded VND128,800 billion (double 2006), or 13 per cent of GDP.

 

At Hanoi Securities Trading Centre (HASTC), 235 trading sessions were completed with nearly 1.304 billion shares changed hands at a value of VND134,978 billion, or nearly VND574 billion per trading day. Value grew 47 per cent against 2006.

At the end of 2007, the VN-Index closed at 927.02 points while the HASTC-Index ended at 323.55 points.

 

According to Mr Vu Bang, Chairman of the State Securities Commission (SSC), the market kept steady growth, with market capitalisation equalling 39.4 per cent of GDP. If the rise in the market capitalisation in 2006 was blamed on the soaring price of listed stocks, the figure in 2007 was the result of the increasing volume of listed shares. “This is a symbol of a steadier growth. The strong and successful capital mobilisation of enterprises, especially commercial joint stock banks, proved the effectiveness of the stock market in capital mobilisation for development investment,” Bang said. According to SSC statistics, as many as 179 companies were licensed to offer 2.46 billion shares to the public at over VND48,000 billion (25 times the amount in 2006), 3.468 million bonds of three joint stock bank banks at VND3,750 billion, 25 million fund certificates of Manulife Progressive Fund at VND250 billion. In total, issuing and bidding activities on the listed market brought in nearly VND90,000 billion (nearly three times against 2006).

 

Mr Bang said stock market capitalisation is expected to equal 50-60 per cent of GDP in 2008. At the same time, SSC also studied, reviewed and amended documents on implementing the Law on Securities; market development policies; custody and transaction of shares of unlisted public companies; and the bond market.

 

Fledging stock markets, as in Vietnam, are vulnerable to even a very small change, although the market has steady development, Mr Bang said. To develop a sustainable market, according to Bang, “[Vietnam] will have solutions to increase supply and stimulate demand in 2008.”

 

Supply will come from the privatisation of giant state-owned enterprises. Mr Bang said in 2007, SSC licensed many companies to offer shares to the public and this may be a factor to raise supply. “Thus, if enterprises find that share issuance in this downtrend market affects capital mobilisation, they can request SSC to delay share offerings to ensure the supply-demand balance,” Bang added.

 

At present, the Ministry of Finance agreed to postpone approved IPOs. By early 2008, relevant authorities are making a list of companies launching IPO to rationalise a new schedule. Some IPOs will be delayed.

 

Besides, SSC also proposed several measures to limit additional issuance and listing of shares in large volume by listed companies. Mr Bang said, according to SSC licences, companies have 90 days to pick a suitable date to launch the offering. After this period, companies can delay their share issuance or listing for 30 days.

 

To stimulate demand, proposed solutions include the attraction of foreign capital. In 2007, the stock market drew a large volume of foreign investors with more than 7,500 accounts opened (three times higher than in 2006) and portfolio value estimated at US$7.6 billion, three times higher than 2006 (this figure is US$20 billion counting the unofficial market). At present, foreign investors hold 25-30 per cent of stake in listed companies and make up some 18 per cent of trading value. “However, SSC and the State Bank will meticulously calculate the settlement of such a large amount of capital inflows, because this relates to banking operation and buying of foreign currencies. If the capital flow is large, it may pressure inflation,” Mr Bang said.

 

Mr Bang said SSC has built foreign investment regulations since March 2006 (when the market was still very hot) but it cannot issue. The core content of the regulations is to increase the transparency of foreign capital inflows and rationalise foreign capital settlement.

 

Besides, one market-stimulating measure is to create favourable conditions for funds to join the market.

 

Especially, Deputy Prime Minister Nguyen Sinh Hung approved the proposal of the Ministry of Finance postponing the effective date of the law on incomes from securities investments. According to Mr Bang, this government action will stimulate demand and ensure sustainable development of the stock market.

The rough year of 2007 was necessary for investors. If the market had not experienced deep corrections, the overheating market would have gone further. Then, we would have even harder lessons. Market corrections in 2007 are early enough to ensure stable market development.

In 2008, liquidity or capital supply for the market is a big issue. To settle this issue requires the engagement of both professional investment institutions and market regulators. In fact, the size of the Vietnamese stock market remains too small relative to the world level and it needs to reach a certain level to draw big international investment institutions. At present, both stock and bond markets are in this situation. To attract more investors, the market needs further development, stability and transparency of policies. To do this, the Government should encourage the establishment of investment funds.

 

It is hard to forecast stock indexes in 2008, but the Vietnamese economy will keep high growth rate and flows of foreign direct and indirect capital will continue increasing this year. The stock market will keep increasing in size and trading volume. Following the IPO of Vietcombank were other IPOs of giant state-owned firms like BIDV, ICB, MHB, PC2, MobiFone, Sabeco and Habeco. Thus, the market cap is predicted to double to some US$60 billion in 2008. As a result, the Vietnamese stock market will reach a new high, become more attractive and have a more sustainable foundation.

 

The formation of OTC trading floor, slated for the second quarter of 2008, specific regulations on online securities trading and the upgrading of HOSE and HASTC systems (also in the second quarter of 2008) will pave the way for positive and systematic changes to the Vietnamese stock market.

In 2008, the stock market will develop well. There are a lot of expectations for market expansion. Macro management, monetary and financial policies will be tighter to maintain sustainable GDP growth. To do this, Vietnam has controlled the cash pumped into circulation.

 

However, according to statistics, over US$3 billion worth of foreign indirect investment capital has been deposited in Vietnamese banks. This amount of cash may not be invested into the stock market and this is a disadvantage for listed companies and enterprises to go public. From the macro aspect, related policies should be amended to create favourable conditions for foreign investors.

 

The market size will grow. Many securities and fund management companies have been established to increase supply. This reflects Vietnamese stock market growth, seen in the expansion of the market cap to some 40 per cent of GDP.