STOCK MARKET: WAITING FOR CASH FLOWS

In mid-January, investors anticipated a downward spiral in the first month of the year, opposite to the growth trend in previous years. According to statistics, in the period from 2010 to 2015, VN-Index climbed in five Januaries, except for 2010. In 2013, the measure leaped 16 per cent.
 
Optimistic economic data, highly expected business plans of listed companies, and net buying of foreign investors at the back of New Year holidays boosted VN-Index gains in January. Vietnam’s economy is forecast to expand 6.7 per cent in 2015 after climbing 6.68 per cent in 2015 – the highest in five years. The investor sentiment was restored after foreign investors stopped net selling. The market also received other catalyst information like Purchasing Managers' Index (PMI) exceeding 50-point threshold, another drop in gasoline prices by near VND400 per litter, and the shortening of payment terms for securities trading to T+2.
 
But after only the first six trading days of 2016, VND46,169 billion (US$2.05 billion) evaporated from the Vietnamese stock market. The domestic market was dragged by global slumps caused by crude oil price plunges and China’s yuan devaluation. China’s stock market had to halt trading in the rest of the day on January 4 and 7, and this premature closing negatively affected the Vietnamese stock market due to concerns over yuan devaluation impacts. It is noted that Chinese yuan devaluation exerted strong effects on the Vietnamese stock market. In August 2015, VN-Index dropped from 640 points to 510 points on China’s currency devaluation.
 
On January 11, VN-Index shed 2 points to 557 points, taking away a total of 21 points since the start of 2016. Similarly, HNX-Index also lost nearly 4 points to 76 points. The market capitalisation on the Hochiminh Stock Exchange (HOSE) fell to VND1,107,262 billion, a drop of VND39,663 billion from the end of 2015. On the Hanoi Stock Exchange (HNX), the market capitalisation also declined by VND6,506 billion.
 
Given developments in China and crude oil prices, the Vietnamese stock market is seen to carry unpredictable system risks. Worsened political instability across the world spoiled efforts to raise crude oil prices. The volatility on the Chinese stock market, caused by its economic issues, shrank global stock markets and sparked off broad sell-offs. Chinese stocks are forecast to fall 30 per cent this year and the yuan value is projected to lose further than in 2015.

This will impinge on global currency markets and drag commodity prices. As China is the largest oil importer in the world, if its economy declines, oil prices are unlikely to recover in the short term.
 
Vietcombank Securities Company (VCBS) noted that such indicators like market liquidity and foreign trading showed heavy selling pressures which may weigh on market gauges. VCBS recommended investors not buying in this context, especially when exchange rate risks are still not fully realised.
 
According to some experts, the exchange rate of Vietnamese dong against US dollar may rise over 5 per cent if China devalues its currency more strongly. The hike in exchange rates will kindle foreign investors to leave emerging markets. In fact, foreign investors sold net to withdraw their capital before and after the US Federal Reserve (Fed) raised interest rates.
 
Another risk is margin loans. According to BIDV Securities Company (BSC), margin loans at some big securities companies might reach VND12,380 billion at the end of 2015, 71 per cent higher than that in March 2015 when the market experienced a sharp slump. If stocks lose further, stock brokers will carry out margin calls.
 
Good news for the market comes from domestic factors like continued macroeconomic stability, high GDP growth, and improved stock market. The Vietnamese stock market is still attractive to investors, particularly compared with China. Money fled from China will be redirected to emerging markets, particularly neighbouring nations. With a shorter payment term for securities trading, Vietnam is expected to catch this capital flow.
 
According to Circular 203, the Ministry of Finance will allow intra-day securities trading from July 1, 2016. Investors will be allowed to buy and sell the same kind of stock within the same trading day on the same account, as well as sell stocks which are pending settlement. This will be a breakthrough step in securities trading in Vietnam. Coupled with new regulations on stock trading, the Vietnamese market is expected to exert a stronger pull on investors and boost liquidity.

Source: VCCI