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World’s worst stock market rout continues   2008-06-01 - Bloomberg

Playing the percentages: an investor reviews falling stocks at the ACB Securities Company in HCMC Saturday  
The worst may not be over for Vietnam’s stock market, the world’s biggest decliner, as shares resumed their slide after a computer breakdown halted trading for three days.



The benchmark VN-Index fell 1.5 percent to 414.10 points, extending the exchange’s 55 percent retreat this year.

Stocks fell in the wake of new inflation data and a damning report on the currency by US investment bank Morgan Stanley.

Fitch Ratings also cut its outlook on the nation’s debt rating.

The Ho Chi Minh Stock Exchange fixed a computer error that interrupted the VN-Index’s 17-day tumble, its longest losing streak since October 2003.

The stock market had tripled in value from the end of 2005 to the end of last year.

“We’ll see a continuation of the selling,” said John Shrimpton, a director of Dragon Capital Group, a Ho Chi Minh City-based fund manager with assets of US$2 billion.

“Inflation is one aspect causing the drop. The market was clearly overvalued.”

The VN-Index, started in 2000, surged almost five-fold in the two years leading up to its March 2007, peak as the economy grew at the fastest pace in a decade and a government equity sale program helped lure foreign and domestic investors.

Local investors who own about 75 percent of listed shares in Vietnam are reeling from the plunge.

Nguyen Van Hai lost almost VND700 million ($43,000), and his parents sold their house to help repay loans he’d used to invest.

“I entered the stock market with hopes that I could earn enough to own a house and get married,” the 29-year-old Hanoi-based taxi driver said.

“Those wishes have now vanished.”

Even after the tumble, the stocks aren’t cheap enough to prompt Templeton Asset Management Ltd.’s Mark Mobius to buy.

The 154 listed companies on the VN-Index trade below 10 times estimated earnings, down from as high as 30 times, according to data from Dragon Capital.

“It’s got a little way to go down still,” said Mobius, who oversees $47 billion in emerging-market equities at Templeton in Singapore.

“If you’re going to go in there, you better think long-term, otherwise you can get stuck with a very illiquid security.”

‘Entrenched’ inflation

About 52,000 stocks and bonds changed hands on average each day this month on the Ho Chi Minh exchange, plunging from the 2007 daily average of 965,000.

Last November the International Monetary Fund said lending to state-owned companies was exacerbating Vietnam’s inflation, which is already more “entrenched” than in any other Asian country.

Consumer prices jumped 25.2 percent in May from a year earlier, the most since at least 1992 and the fastest pace in Asia, according to May 27 figures from the General Statistics Office in Hanoi.

Food prices surged 67.8 percent.

Vietnam’s central bank raised its key interest rate to 12 percent on May 17, the highest since it was introduced in 1998, from 8.75 percent.

Meanwhile, Morgan Stanley warned in a May 27 report the country was heading for a “currency crisis” because the central bank had kept the dong too strong as inflation soared and the trade deficit widened.

Fitch Ratings cut its outlook for Vietnam’s BB-rating to negative from stable on Thursday, citing risks to the banking system because the government was too slow to respond to higher inflation.

“The longer it takes the government to raise interest rates, rein in inflation and slow down demand, the more likely that would lead to a hard landing,” said James McCormack, head of Asia-Pacificsovereign ratings at Fitch in Hong Kong.

Interest rates “have to be higher than inflation.”

Property developers have led this year’s slump amid concern higher borrowing costs will curb home purchases.

Idico Urban & House Development Joint-Stock Co., a Dong Nai Province-based builder, retreated 81 percent, the most this year for any company listed on the Ho Chi Minh exchange.

Some foreign investors say the market is attractive enough to add to their holdings.

“We’re increasing our investments in Vietnam even more,” said Beat Lenherr, who oversees more than $20 billion of assets as Singapore-based chief global strategist at LGT Capital Management.

“This is an embryonic market that had a strong birth. Now the baby is struggling a little, but we think it’ll get its strength back.”

Luong Minh, a 53-year-old state employee, who earns VND5 million ($312.50) a month in HCMC, is less sanguine after losing VND100 million ($6,250) on the stock market.

“I don’t want to sell the shares I have, but the longer I keep them, the bigger the loss,” Minh said.

“It is hard to sell now anyway as the market is almost frozen. We are desperate.”

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