Stock Market in 2010: Confidence in Market Recovery

The financial market, especially the stock market, is developing increasingly complex as the Vietnamese and global economies have gone out of the worst slump in decades. To provide a wider outlook on the market in 2010, Vietnam Business Forum has a talk with Mr Hoang Xuan Quyen, Deputy Director of Tan Viet Securities Inc.

 

Macroeconomic policies such as monetary policy (interest rate, compulsory reserves, exchange rate, credit, etc) and fiscal policy (budget deficit, debt, growth stimulus, etc.), tax policies, etc. cause an all-side impact on the economy and business environment, on consumer behaviours, and private investment decisions (enterprises, households and individuals). Policy risk is an unpreventable woe in the world, not only in Vietnam.

 

In 2010, although financial markets have come out of crisis, there are still many challenges. High inflation may occur as prices of gasoline and basic goods climb; pressure on exchange rate may intensify as the US dollar appreciates while the trade deficit, balance of payment and budget deficit of Vietnam are in the threshold limit. Whether the State will implement tight or loose monetary policy; fiscal policy will give priority to growth or macro stability and balance; the tax policy will aim to foster revenue source or gather all taxes and other policies remain unconfirmed.

 

Once macro policies are difficult to predict, businesses will have to increase costs by buying insurance policies, deducting for provision funds and increasing future options to minimise this risk which may lead to higher prime cost and cost price. The private sector will be very hesitant to expand investments on fears of high capital costs. Profit growth of companies will be negatively affected, resulting to smaller-than-potential earnings. This indicates that the stock market may suffer adverse effects.

 

The stock market is basically prospective but it will encounter numerous challenges arising from inflation, exchange rate and tax among others.

 

In particular, inflation remains the biggest threat. Expected inflation still stays at reasonable level of less than 10 percent but it may accelerate if global prices of petroleum and basic commodities climb high. Inflation always moves in the opposite direction with the stock market because higher price will cause higher capital costs, reduce business efficiency and distort resource allocation. If inflation is controlled under the double-digit rate, the investor confidence in the stock market will strengthen.

Exchange rate will be regulated to the extent that it will benefit both importers and exporters, attract more direct and indirect foreign capital flows while minimising the dollarisation of the economy.

Such taxes as personal income tax on securities investment and real estate tax will have certain impacts on the participation of investors.

 

The [second] stimulus package is providing interest rate subsidy for medium- and long-term loans for agriculture, rural areas and export-oriented production. Thus, seafood, rubber and garment industries will benefit from this policy.

 

Gold trading floor management and credit limitation on real estate will make the stock market become a more attractive investment channel.

 

Equitization and initial public offering (IPO) of large-scaled enterprises like State-owned commercial banks and corporations will be sped up. More leading companies will be listed on the stock market.

 

Completed and effective programmes of SSC are aimed to scale up the market size by encouraging large companies of attractive industries like banking, telecommunications and beverage to list shares on the stock market, enhance the publicity, transparency and justice for market players; upgrade the market liquidity and promote the role of the stock market as an important capital attraction channel for the capital market.

 

Market participants are welcoming and waiting [these] solutions to be applied soon. I believe that if these solutions are enforced soon, the stock market will actually grow in quality and quantity

The existing challenge is when the above measures will be enforced? Amongst a large volume of work expected to be done, I think, the stock market is waiting for early enactment of solutions to improve trading regulations to enhance the liquidity, upgrade the size and quality of listed shares, supervise the market to eradicate abnormalities of the equity market, ensure the adequacy, reliability and fairness of published information.

 

Foreign finance was diminished in 2009 but foreign investors still injected about US$5 billion into the listed market, or 15 percent of the market size. Although there are many different points of views, I believe the Vietnamese stock market is still very attractive to foreign capital flows. The stock market is currently very attractive as the P/E ratio of 50 shares with the largest capitalisation is about 15 and the profit growth of listed companies is expected to reach 20-25 percent in 2010.

 

The government will allow improving billion of shares owned by foreign investors in the Company up to 49 mass percent, leaving profits on the transfer tax and allowing businesses ventures, 100 percent foreign-owned Company was converted the JSC will encourage foreign investors invest in the stock market.

 

The government will allow foreign investors to hold 49 percent of equity in public companies, scrap tax on transferring profits to home countries and permit joint venture companies and wholly foreign-owned companies to transform into joint stock companies to encourage foreign investors to join the

stock market.

 

Banking, real estate, construction, building material, seaport service and mining remain promising industries. Seafood and rubber industries will be benefited from lending interest subsidies. Shipping industry will rebound strongly in the wake of global economic recovery. The underlying driver of shares this year will be profits.