Toward Modern Stock Market in 2010

 

According to economists, Vietnam's economy has bottomed out from the economic crisis and has made impressive recoveries. The country’s GDP in 2009 is estimated to grow 5.2 %. Currently, the Government is carrying out several important measures to stabilise the macro economy and maintain the economic growth rate at 6 per cent to 6.5 %.

 

Goldman Sachs projected Vietnam’s GDP to climb 8.2 % in 2010 while the National Assembly, the highest lawmaking body, has approved a growth target of 6.5 %. Trusting the sustainable economic development of Vietnam, international donors at the Consultative Group Meeting 2009 like the World Bank (WB), the Asian Development Bank (ADB), Japan and the European Union (EU) pledged to grant over US$8 billion in ODA loans to Vietnam.

 

On the other hand, there are many advantageous points in 2010. The National Assembly’s policy advocates sustainable development in 2009, not sacrifice for growth. The objective is growth but inflation is reined and macro economy is stabilised. The Government’s actions in economy management have reflected the successful control of the situation.

 

In 2010, although there are concerns over a return of inflation, trade deficit and payment balance, with early interventions of the Government in economy, the Vietnamese stock market is expected to be in good form in 2010.

At present, the State Securities Commission (SSC) is completing a Vietnam stock market development strategy for the period until 2020, which also covers the market restructure, including the derivative market. Currently, the Hochiminh Stock Exchange (HOSE) is studying the construction of VN-Index Futures. Several securities companies have plans to develop derivative products.

The Vietnamese stock market is rapidly developing but there are no financial derivative products like options, swaps and futures. Financial leverages usually have both positive and negative impacts. They help improve the liquidity of the market on the one hand but they bear high risks if they are not managed well. Providers of financial leverage need effective risk management, investors need good knowledge of these products and market regulators need effective supervision.

 

Mr Nguyen Doan Hung, Vice Chairman of SSC, said: The Vietnamese stock market is very young in comparison with global markets. These products in line with international practices will be gradually introduced, based on the actual development of the Vietnamese stock market. "In my opinion, [we] need a consistent and full legal framework before introducing [these] products. Currently, the State Securities Commission (SSC) is amending the Law on Securities and other legal documents to complete the legal framework on securities and securities market,” said Mr Hung.

 

Mr Hoang Xuan Quyen, Deputy General Director of Tan Viet Securities Joint Stock Company (TVSI), said: Margin trading allows investors to buy a double volume of shares from the same capital amount if the allowed margin ratio is 50 %. This will certainly scale up the market liquidity very strongly. The market will undergo breakthrough growths.

 

Another threat to the stability of the market in the past time and in the coming time is the ghost of the mortgage lifting. With a wide volatility of a stock market as Vietnam, risks of financial leverage are enormous. Hoang Xuan Quyen, remarked: “Risks of the financial market are gargantuan and risks of financial leverage increase as long as the stock market goes down. Therefore, we propose the State Securities Commission introduce margin trading soon to legalise financial leverage and tighten control over margin trading principles. Margin trading will place different levels of warning to investors to stop loss when necessary. And, this will help reduce the losses of investors to a minimum.”

 

SSC is presently drafting a criterion set for financial security of securities companies. The promulgation and application of the criterion set will help securities companies to operate safely and healthily and lay the groundwork to ensure risk-free margin trading for securities companies. Mr Hung expressed his belief that the amendments and supplements to the legal framework will boost the market development, including the derivative market.

The stock market downtrend in late 2009 makes many stocks relatively attractive. According to securities companies, if the P/E ratio in 2009 is 11.5, the forward P/E in 2010 is only about 10.5, relatively attractive for medium and long term investments. Mr Vu Huu Dien, Manager of Portfolio Management Department of Dragon Capital, a leading investment fund, said: Investors can invest in such sectors as consumer goods, banking and real estate (with focus on retailing). The dong depreciation will encourage exports and the Government is also applying measures to promote exports. Hence, exporters should be noticed by investors. Sectors, with short term problems but promising long-term prospects, will be developed. For instance, fisheries, garment, textile, leather, footwear and agricultural sectors will be supported in the medium and long term as they create a large source of foreign currencies.

 

Mr Hoang Xuan Quyen said: When the stock market is in the uptrend, I think, all industries have good stocks, especially ones in banking, real estate, shipping, seaport services and construction materials. Importantly, investors should pick up right shares of the right industry at the right time. Such sectors as construction, building material and infrastructure (seaport) are being supported to attract foreign investment. Therefore, these sectors have good growth prospects in the near future.

 

One special concern of investors is the correlation of the stock market with the real estate market. Where is the most profitable and safest area to invest in? According to many experts, with inflation risks in 2010, if there is a decline, the stock market often decreases more deeply than the property market because the latter is still considered a safer shelter and a more specific utility value than the former.

 

However, cash flows on the stock market have very fast turnovers while the real estate market requires long-term capital plans. When cash flows are channeled into these two markets, the stock market will rise faster. This is also because stock market grows in association with the economic development, or profit growths of listed enterprises in particular. Corporate earnings prospects are estimated high in 2010 as global economies will recover and Vietnam’s GDP is forecast to expand 6.5 % in 2010, higher than 5.2 % in 2009.

 

The Vietnam stock market is an emerging market where individual investors accounted for 80 % of trading volume and the stock price is usually moving in a wide range. According to economic experts, in addition to fundamental technical analysis, the following factors also determine the success or failure of an investment: First, choose the right time to invest; second, choose the right sector in a certain period; and third, choose a good company with high growth prospects.

 

For emerging markets as Vietnam, the stock price usually moves in a very wide range, thus the right investment time will generate considerable profits for investors. The second and third factors require a good analytical knowledge and professionalism of investors to choose the best industry to buy in a certain period.