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US finance crisis sinks share prices   2008-09-22 - Viet Nam News

Investor confidence was seriously affected by the US financial crisis and led to a slump in share prices on the domestic stock market last week.

"Investors are still hoping for more supportive information which would push up the stock market".

HCM City Stock Exchange’s VN-Index lost 36.94 points, or 7.76 per cent, to close at 439.06.

Liquidity was low, as trading volume only reached 103 million shares, down 19 per cent over the previous week. Trading value was about VND3.72 trillion (US$225.45 million), a fall of 20 per cent.

Foreign investors continued to be net sellers, unloading 4.38 million shares and buying 3.57 million on average per day. The volume of purchases by foreigners increased by about 70 per cent over the previous week, and stock sales were up about 75 per cent.

In the northern market, the HASTC-Index closed at 145.74 after losing 14.88 points, or 9.2 per cent, in the week. Around 10 million shares were traded per day, a fall of 25 per cent over the previous week. Daily turnover reached VND351.34 billion ($21.3 million), a decline of 35.2 per cent.

The Ministry of Finance’s adjustment to the price of diesel, which greatly affects enterprises’ production and business results, was not confidence-boosting enough to prevent the market from a downward trend.

The price of diesel eased by VND450 per litre on Tuesday to a price of between VND15,450-15,500 (93.6-93.9 US cents).

Major questions raised among domestic investors over the week were how long the crisis on Wall Street would last, and whether Viet Nam was safe from the crisis.

The US financial system was severely shaken with consequences considered the worst since the Great Depression in the 1930s, resulting in the recession of global financial markets.

Bear Stearns, Fannie Mae and Freddie Mac, as well as other US financial institutions such as Lehman Brothers and American International Group Inc (AIG), who were heavily involved in home mortgages, suffered greatly as the housing market hit its lowest point in 18 years.

Lehman Brothers last Monday filed for bankruptcy, and Merill Lynch agreed to sell itself to Bank of America.

The US Federal Reserve announced on Wednesday that the Federal Reserve Bank of New York would lend $85 billion to AIG to save the country’s biggest insurer from bankruptcy.

Earlier, the US Government promised $200 billion to rescue Fannie Mae and Freddie Mac.

Many investors, however, feared these efforts were not enough and in the long-term possibly detrimental as they could encourage high risk taking by financial institutions.

Kenneth Rogoff, former chief economist at the International Monetary Fund, said in the next few months the US would need $1.5 trillion to bail out and take over financial institutions, which will be affected by the financial storm.

The US Government is now discussing policies to prevent this crisis from spreading further and to rehabilitate the finance sector.

New legislation to move troubled assets from the balance sheets of American financial companies into a new asset management institution owned by the State may be passed soon.

News of the potential legislation immediately had positive effects on the US stock market, and on Thursday stock indices rose at the highest level in 6 years, according to an FPT Securities report.

Economists warned, however, it would take time for the US financial market to be normalised.

"This crisis will slow down the recovery of the [US] economy further than data released in August indicated. Even before Lehman’s bankruptcy, this data showed a negative landscape with more unemployment and declines in domestic consumption and export growth," said Nguyen Truong Son, an analyst at FPT Securities’ Analysis Department.

The US financial crisis has had almost no impact to banks in Viet Nam, according to Son, because about 98 percent of these banks’ assets are sourced in Viet Nam. The slowdown of the US economy might, however, lead to declines in Viet Nam’s exports in the coming months.

"However, domestic demand is contributing an important part to economic growth, together with inflation being well-curbed and materials and goods prices in the world currently quite stable, so risks to the economy are not very high," he said.

"Impacts of the global situation on the domestic stock market are now mostly in investors sentiment," Son said, adding that the good news on Thursday evening from the US stock market increased the positivity of domestic investors’ mentality on Friday.

As a result, the VN-Index on Friday increased 19.78 points over Thursday, while the HASTC-Index gained 9.66 points.

Vo Tri Thanh, Central Institute for Economic Management economist, said foreign direct investment, which is more long-term, would see little impact. But foreign indirect investment might be significantly affected.

In the globally-spreading recession, financial institutions will have to revise their investment portfolios and investment strategies; this might lead to a change in the investment infusion into the domestic capital market, according to Thanh.

"Investors are still hoping for more supportive information which would push up the stock market," said Nguyen Truong Son, at FPT Securities.

As there is both negative and positive information, it is unlikely that the stock market will see an upward trend next week. "In our opinion, there’s a high possibility that the market will see adjustment in the middle of the week and stay level till the end of week," said Son.

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