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BUSINESS IN BRIEF 29/3   2011-03-29 - Viet Nam Net

High inflation dims investor interest

Official confirmation of March's soaring inflation rate dampened excitement among stock investors yesterday, with figures released by the General Statistics Office (GSO) showing that consumer prices rose 2.17 per cent in March compared to the previous month, the highest single-month inflation rate in 34 months.

Meanwhile, the trade deficit also reached a record high in March, totalling US$1.15 billion, the GSO revealed.

Stocks reacted on the HCM City Stock Exchange, with the VN-Index closing down 1.35 per cent to 461.32 points.

Among 139 listed shares losing ground, PetroVietnam Finance (PVF) declined by 3.7 per cent, Saigon Securities Inc (SSI) by 2.4 per cent, Vietcombank (VCB) by 2.2 per cent, Sacombank (STB) by 1.4 per cent, and Vinamilk (VNM) by 1 per cent.

A few blue chips managed to avoid the fall, including property developer Vincom (VIC), which closed up 2.5 per cent, and Hoa Phat Group (HPG), up 0.8 per cent.

The volume of trades was sluggish, totalling just 27.6 million shares worth VND616.8 billion ($26.7 million).

On the Ha Noi market, the HNX-Index also declined by 0.88 per cent to finish the session at 93.28 points. Volume, although low, exceeded that on the HCM City exchange, reaching 32.3 million shares, although the overall value of trades remained lower, at VND494.5 billion ($23 million).

Blue chips on this bourse outperformed those on the HCM City market, with only three of the 10 leading shares by capitalisation declining. Bao Viet Securities Co (BVS) closed down 1.06 per cent, while property developer Sacomreal (SCR) and PetroVietnam Construction (PVX) were each off by about a half-a-per cent.

"Sellers seem tentative, waiting for reasonable prices from buyers rather than dumping shares and getting out of the market," said Nguyen Quang Huy, director of a HCM City-based securities company. "The markets are waiting for support from cash inflows or any economic information."

Foreign investors weakened the purchases on the HCM City bourse yesterday, buying a net of just 100,000 shares, while they continued as net sellers on the northern market by a net of 78,200 shares.

Fund to increase portfolio cash ratio

The Viet Nam Securities Investment Fund (VF1) planned to increase the proportion of its portfolio held in cash from 5-6 per cent to 10-15 per cent, as well as change the fund type from a closed-end fund to a wholly or partially open-ended fund, VF1 announced during its annual investors meeting this week.

To achieve the new ratio, the fund would sell some of its stock portfolio, placing it in a better cash position to exploit newly-arising opportunities in initial public offerings or the equitisation of state-owned enterprises such as Vietnam Airlines or MobiFone, as well as acquire shares issued by private companies with strong potential.

VF1 general director Tran Thanh Tan said Viet Nam's stock market in 2011 continued to hold a positive outlook and the fund's investment strategy continued to be value-oriented.

Strong Governement measures this year to regulate the economy and the low price-to-earnings ratios of many shares would help attract foreign investment back to the market, he added.

"With 85 per cent of our portfolio held in stocks, when the market recovers, our portfolio will grow," Tan said.

Investment would continue to focus in such key areas as retail, telecommunications, real estate, energy, industry and mining, he added.

VF1 was also preparing the necessary documents to change its fund type to an open-ended fund once the Government decree allowing operations of open-ended funds takes effect in July.

At the end of 2010, VF1's net asset value (NAV) reached VND2.27 trillion (US$108.3 million), down 8.2 per cent from the beginning of the year, with the fund incurred a loss for the year of VND203.6 billion ($9.7 million). Fund disbursements declined 13 per cent from 2009 to about VND1.24 trillion ($59 million).

Cash and other assets accounted for 7.1 per cent of total NAV as of last December 31.

Last year, VF1 reduced the proportion of unlisted shares in its portfolio from 17.8 per cent to 16.8 per cent of total NAV due to the prolonged stagnation of the over-the-counter market, increasing the proportion of listed shares to 76.1 per cent.

VF1 is currently listed on the HCM City Stock Exchange under the code of VFMVF1. It closed unchanged yesterday to VND10,700 (US$0.51).

Cities urged to tighten belts


All municipal departments and agencies should practice greater thrift to generate more funds for social welfare measures, HCM City People's Committee Chairman Le Hoang Quan said on Wednesday.

He said they should also focus efforts on solving current difficulties facing enterprises to stabilise production and prevent unemployment.

Addressing a meeting held to review implementation of the Government's Resolution 11 issued last month to curb inflation, stabilise the macro-economy and ensure social security, he said the city would have to provide additional assistance to needy people this year.

Besides regular social welfare measures, the city will provide VND100,000 per person per month for about 6,900 very poor people who are old, ill or living alone and subsidise electricity bills for 36,000 poor households to the tune of VND30,000 per month.

This additional assistance will cost about VND176 billion (US$8.5 million), according to the city's Department of Labour, Invalids and Social Affairs.

Thai Van Re, director of the city's Department of Planning and Investment, said at the meeting that the "task of ensuring social security has been carried out well by the city."

The city's districts have prevailed upon 18,800 landlords so far to refrain from increasing rents until the end of this year, benefiting about 399,800 low-income workers and students.

Dao Thi Huong Lan, director of the city's Department of Finance, said that after the city had calculated ways to cut public spending from April to the end of this year, including a temporarily halt to the purchase of automobiles and other facilities, a savings of VND410 billion ($19.6 million) would be achieved over this year's initial public spending plan.

Officials said at the meeting that enterprises were facing several problems related to production, besides the higher prices of input materials including petrol and electricity. They were finding it difficult to access credit and had to struggle with high interest rates.

Interest rates of 22-23 per cent per year while profits are often less than 10 per cent have forced enterprises to cut back on production and prevented further investment, officials of the city's Department of Industry and Trade said.

Besides, enterprises now sell US dollar for commercials banks at the listed price, but when they want to buy US dollar for their payment, commercials banks do not have US dollar to sell for them.

Vo Van Luan, head of the People's Committee Office, said initial results had been obtained after implementing the Government resolution.

For instance, black market foreign currency transactions had been strictly controlled, he said.

"However, commercial banks can only supply a limited amount of US dollars to meet legitimate demand of individuals and companies," Luan said.

Nguyen Thi Hong, deputy chairwoman of the People's Committee, asked commercial banks to adjust their loan structure to prioritise loans for production, exports and projects under the city's economic transition programme.

The city would also offer some solutions, including subsidising a part of the interest rate for enterprises that invest in advanced equipment and technologies and produce high quality products to replace imports, she said.

Quan said that the city would next week invite the Governor of the State Bank of Viet Nam and the Finance as well as Industry and Trade ministers to work with the People's Committee in devising measures to help enterprises finding it difficult to get loans or foreign currencies for legitimate transactions.

Ministry proposes five steps to reduce demand for dollars

The Ministry of Planning and Investment (MPI) has proposed five measures to tackle the widespread use of the dollar in the domestic economy.

In a ministry website statement, it said the first measure was to increase US dollar reserves to enable more active management of exchange rates; and to use a basket of several currencies for international transactions instead of the US dollar.

Secondly, the country needed to adjust its production structure to avoid dependence on imported raw materials to reduce demand for US dollars. The third measure would be to improve the operational quality of credit agencies and expand services related to dong transactions.

Increased dollar remittances by businesses and individuals should be encouraged as the fourth measure.

The fifth measure, the statement said, was strict implementation of policies and regulations relating to the listing of prices in currencies other than the national currency.

While black market trade in US dollars was strictly banned, relevant agencies needed to supervise the operation of credit institutions that were reluctant to sell dollars to businesses and individuals with legitimate needs, the Ministry said.

It called for checks on the volume of foreign currency held by credit agencies or residents.

The ministry said the country needed to learn from the experience of Thailand and other Southeast Asian countries in the 1997-98 financial crisis and take appropriate measures to ensure macroeconomic stability.


Steel prices cut to boost demand


Domestic steel prices suddenly dropped to levels similar to those at the start of the year, said the Viet Nam Steel Association (VSA).

After two months, the price of steel declined by up to VND300,000 (US$14) per tonne, said deputy chairman of VSA Nguyen Tien Nghi.

He added that the steel prices currently stood at between VND15.5 million ($738) and VND16.4 million ($780) per tonne.

Prices of steel ingot in North Africa were at a standstill. Moreover, governments in some Southeast Asia countries had adopted policies to limit inflation, Nghi explained.

Changes in domestic market had prompted prices to drop, he said, adding that many investors had cut investments in construction in response to Government policies to minimise inflation, so demand had decreased since March.

In response, steel companies had to reduce prices to increase market demand, Nghi said.

He also predicted that the price would continue to fall in the following months as the policy had proved effective.

However, he affirmed the decrease would not be significant.

Responding to the views that the Vietnamese steel industry would be affected by the crisis unfolding in Japan, the VSA affirmed that the impact would not be significant as Japan was not a vital partner.

The crisis in Japan would have an insignificant effect on the Vietnamese steel industry, said VSA chairman Pham Chi Cuong.

He affirmed that prices would not increase because the steel that Viet Nam imported from Japan was mainly specialised high quality steel.

Cuong, however, said that due to the quake, steel demand from constructors of Japanese projects in Viet Nam would decline.

In the first two months of the year, Viet Nam consumed more than 900,000 tonnes of steel. Total sales in March were estimated at only 400,000 tonnes, a month-on-month decrease of 75,000 tonnes.

Electrical equipment firms gain market share

Sales of many Vietnamese made industrial products have increased in the domestic market, benefiting both enterprises and consumers and mitigating the country's trade deficit.

Electric generator shops in District 10's Ly Thuong Kiet Street are often crowded, as businesses and residents prepare for coming power cuts.

Customers are increasingly buying locally manufactured generators from familiar brands like Huu Toan and Hoa Binh.

Huu Toan generators are being sold in all provinces and cities nationwide, supplying a wide range of generators from 1.5kVA to 2,000 kVA.

Besides good domestic sales, Huu Toan generators are exported to 15 foreign countries, including Bangladesh, Panama, Cambodia, Laos, Sri Lanka, Russia and Indonesia.

Similarly, sales of domestic electric wire and cable products have also increased strongly at both home and abroad. Tran Phu Electric Mechanical Company Limited and Viet Nam Electric Wire and Cable Limited Company reported robust sales last year.

The companies also manufacture medium voltage power cable, heatproof, oil-resistant, fireproof cables, copper wire and others, which have won the trust of many foreign investors in Viet Nam for use in their projects instead of imports.

The domestic electrical equipment sector has achieved strong growth in recent years of about 20-25 per cent a year, according to the Ministry of Construction, adding that there are big opportunities for the sector to increase both domestic sales and exports.

Currently, local companies occupy 70 per cent of the market share, while high-end imported products and cheap electrical equipment imported from China and neighbouring countries hold the remainder.

Improving production technology and distribution systems as well as conducting market research to develop products had all contributed to the success, the ministry said.

The domestic mechanical engineering industry had also gradually won the trust of consumers, said Nguyen Van Thu, chairman of the Viet Nam Engineering Mechanical Association.

The domestic market, however, still relied on imported mechanical engineering products, mainly for industrial projects, including thermal power, hydro power, cement and mining projects.

The Government should adopt measures to reduce imports to benefit local enterprises, reduce the trade deficit and exploit the design and manufacturing potential of local companies, he said.

Nation appreciates IMF help on inflation, investment efficiency

Viet Nam appreciated the International Monetary Fund's help in controlling inflation and increasing public investment efficiency, Minister Nguyen Xuan Phuc, chairman of the Government Office, said yesterday.

He made the statement when receiving IMF Viet Nam representative Benedict Bingham and a visiting IMF delegation.

Phuc said the Vietnamese Government was committed to sustainably creating a stable macro-economy and maintaining a good social welfare system, especially for the poor and ethnic minorities.

He announced that Prime Minister Nguyen Tan Dung had approved a plan to evaluate the finance sector and that a letter requesting the collaboration of the IMF and the World Bank in the plan would soon be sent.

Bingham said Viet Nam's Resolution No 11/NQ-CP released on February 23 reflected the Government's strong commitment to stabilising the macro-economy.

He also presented the IMF's suggestions on monetary, exchange rate and fiscal policies.

Bingham said that stabilising the financial situation was crucial and required preventive strategies at a macro level.

Fruit exports slump due to poor quality


Export prices for fresh fruit have plunged after many European countries have suspended imports of several kinds of fruit from Viet Nam over quality considerations, Tuoi tre (Youth) newspaper reported.

The suspension began since early this year after some of the imported fruit failed to meet the international GAP (Good Agricultural Practices) standards, it said.

GAP certification helps ensure the quality, safety and origins of exported fruit.

Exporters whose shipments were returned have had to sell the fruit at lower prices in the local market or wait to export it in smaller volumes to mainland China.

Dam Van Hung, owner of the Ben Tre Province-based Huong Mien Tay Green-peeled Grapefruit Exporting Company, said he withdrew two containers of the fruit from Cat Lai Port in HCM City for fear that Vietnamese fruit would attract technical barriers imposed by Germany.

This had recently happened to fruits exported from Thailand, he said. Hung said he had to eventually retail the fruit in Ha Noi, which was difficult initially because few people would buy grapefruits in winter.

While waiting for orchards to receive Global GAP recognition, he would have to seek less stringent markets in Asia, Hung said, adding that if fruits were only consumed locally, prices would fall further and farmers would suffer.

He said obtaining global GAP certification was not easy because it cost tens of thousands of US dollars for each shipment. He said close co-operation between farmers, traders and the Government was required to address this issue.

Local prices of many fruits in season had already fallen over the last several weeks, farmers said.

Le Van Thanh, owner of an orchard near the Vinh Kim wholesale market in Cuu Long (Cuu Long (Mekong) Delta) province of Tien Giang, said the price of green-peel grapefruit had fallen by VND10,000 a kilo to VND18,000 after the traditional Lunar New Year or Tet holiday early last month.

He said falling prices and low consumption had made it difficult for farmers to sell fruits that were in season.

The head of the Cho Gao Dragonfruit Co-operative in Tien Giang, Huynh Hong Ung, said that the harvest of dragonfruit was in full swing, but traders were purchasing them only to sell in the local market and export them to China.

Dr Nguyen Minh Chau, director of the Southern Fruit Research Institute, said Cho Gao District grew dragon fruit on 3,000ha, 100ha of which were cultivated under Global GAP standards as instructed by the institute.

However, like Hung, he said that the lack of funds meant having the fruits inspected and certified was not possible for either the farmers or the exporters.

The loss of the European market has forced fresh fruit exporters to focus on China, but this move has not been very successful. Nguyen Xuan Huy, director of the Long Giang Agricultural Products Processing Company in Tien Giang, said China had limited imports of longan from Viet Nam after Tet, citing substandard quality and packaging.

This had caused prices to plunge to VND12,000 a kilo from VND20,000 a kilo earlier, he said.

The price slump has also affected the custard apple crop in Tien Giang. Nguyen Van Ngan, head of the Lo Ren-Vinh Kim Custard Apple Co-operative, said prices of the fruit now stood at VND15,000 a kilo or a third of pre – Tet prices. He said custard apples cultivated under Global GAP standards were selling for just VND25,000-27,000 a kilo because the yield was low and the fruit was mainly consumed in the domestic market.

Chau said that Vietnamese fruit would have higher value and farmers enjoy more profit only if they were exported to Europe.

He said European markets still preferred Vietnamese fruit, including grapefruit, banana, pineapple, papaya, dragonfruit, and mango. Because they were high-end markets, for them Global GAP standards was a matter of course.

In this situation, the Government should support farmers to cultivate fruit trees under the required standards and expand cultivation areas, as well as provide funds to enable quality certification of farm produce.

Nguyen Van Khang, Chairman of the Tien Giang People's Committee, said that the province has been slow in applying the Global as well as Viet GAP standards to local fruit cultivation even though it was the first locality to introduce these.

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