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No bottom in sight as market continues to plunge   2008-06-07 - Bloomberg

Vietnamese stocks may extend this year’s worst slump among global markets as the government raises interest rates to quell inflation, US investment banker Merrill Lynch said.

 
Another dull day at the office – a view of a deserted ACB Securities office in HCMC  

 

 

Higher borrowing costs will restrain earnings growth and prevent a “huge bounce” in Vietnam’s equities, Mark Matthews, Asia Pacific head of equity strategy at Merrill Lynch in Hong Kong, said in an interview Thursday.

The Ho Chi Minh Stock Index fell 1.5 percent to 384.24 Friday, capping a record 22-day losing streak, on concern a widening trade deficit and inflation at a 16-year high will prompt overseas funds to sell local holdings.

The benchmark, at its lowest in 27 months, has lost 59 percent this year.

“It won’t increase 30 percent in the next month or 50 percent in the next two months,” Matthews said.

“Investors can take the time they need to find the companies they want in Vietnam.

I’d wait for some more clarity from the government on how it’s going to handle the issues facing the economy.”

Standard & Poor’s, Moody’s Investors Service and Fitch Ratings have lowered their outlook for the nation’s debt to negative, citing a slow government response to inflation.

The speed of the government’s response may determine whether Vietnam avoids a replay of Thailand’s economic collapse in the 1990s that slashed the benchmark SET index by 85 percent from January 1996 through August 1998, Matthews said.

“There’s no reason why Vietnam can’t fall another 70 percent” if there’s a repeat of the errors in Thailand, where the policy response “was extremely slow,” he said.

“We will not see Vietnam rebounding, at least this year.”

HCMC-based VinaSecurities chief executive Kelvin Lee said by telephone interview Friday the government has been “too slow to find the right solutions.”

“The slower you are to react, the harder it becomes to find good solutions,” he said.

Good years

Vietnam’s main stock index has risen in each of the previous four years, boosting the benchmark more than fivefold as investors were drawn by economic growth that has averaged 7.5 percent since 1990.

They may stay away now as the country grapples with the side effects of that growth, said Dennis Lee, who helps manage the equivalent of US$6 billion at CIMB-Principal Asset Management Bhd. in Kuala Lumpur.

“Vietnam was a market that couldn’t be ignored because it was a fast-growing economy,” said Lee, who has invested in Vietnam through Malaysian and Singaporean companies with Vietnamese operations.

“For the time being, it can be ignored because you can find markets with better fundamentals.’’

Central bankers raised Vietnam’s base rate to 12 percent from 8.75 percent on May 19.

They have no current plans to increase it further, Nguyen Dong Tien, a deputy governor of the State Bank of Vietnam, said June 2.

Consumer prices

The government this week cut its growth forecast for 2008 to 7 percent from 9 percent, and said curbing inflation is its top priority.

Consumer prices rose 25.2 percent in May, according to the Hanoi-based General Statistics Office.

The trade deficit tripled in the first five months to $14.42 billion from $4.25 billion a year earlier.

“There are so many things to deal with in Vietnam,’’ Matthews said.

“The current account deficit is very high, inflation is very high and credit growth is extremely high, so there are going to be non-performing loans, probably. How they deal with this requires a delicate balance.’’



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