Vietnam's stock market shows no sign of recovering

But long-term investors say the slow momentum is a good thing for the overall market.
Last week, while Asian stock markets were broadly higher as investors regaining their appetite for risk - even if Hong Kong and Tokyo closed down on Friday (August 24) - VietnamÆs stock markets continued to move sideways.

Two weeks ago the dominant stock market in Vietnam, the Ho Chi Minh Stock Exchange (HOSE), fell below the psychological threshold of 900 points, and closed at 887.93.

On Friday (August 24), it closed at 905.48, up 17.86 points from the day before, but hardly a massive rebound. Indeed the summer hasnÆt been good to VietnamÆs exchanges û well before the rest of the worldÆs markets started their downward trends, VietnamÆs bourses were already in correction mode.

The HOSE ended July down 12% while the Hanoi Exchange lost 10.9% during that month. The resulting aggregate listing markets lost 11.3% in July, and that was off an 8% loss in June.

But investors don't seem to be too worried. Fund managers say slow momentum is a good thing and that while the market is low, it presents a good buying opportunity. Others, who still see room for a continued downward push, point out that these declines were a much needed correction. After all, for most of 2006 the stock market index was pointing to the stars.

ôThe correction has been good,ö says Nguyen Duy Hung, founder and chief executive of Saigon Securities Investors, better known as SSI and one of the securities houses in Vietnam that is well known amongst local investors who make up the majority of the volume of trade on the bourses. ôIf the market kept growing at last yearÆs pace, and even the first quarter pace, it would have been way too hot. This correction is healthy and good for long-term investors.ö

But what about market sentiment? He says: ôOf course, while itÆs hot everybody is happy, while itÆs going down, everybody starts getting nervous. But after two weeks of declines people are beginning to understand the situation.ö

Similarly, To Hai, director at Bao Viet Securities Company, another house that attracts a high percentage of retail investors, adds: ôWe need to educate the retail market here. People need more time to experience both crashes and upsides of markets. Mostly, people have only felt the upside, and thatÆs not realistic.ö

When thinking about the stock exchange in Vietnam it is important to visualise who is investing. While major funds have, or plan to, put money into the market, and international investors (either through these funds or on their own) are bigger investors in terms of aggregate amounts, the sheer number of retail investors is daunting. Some say they comprise as much as 70% of the market.

Retail investors queue up at securities houses, place their order, which is then phoned in to the brokersÆ colleagues at the stock exchange. ItÆs not unusual to see women in pyjamas whoÆve peddled push bikes up to the shop to make their order brushing shoulders with men in dress shirts and toting brief cases. When asked how they chose their stock, a typical answer is they recognised the name of the company. They donÆt talk about price-to-earnings ratios or net-asset values.

ôBefore we were afraid because no one was losing money in the market and thatÆs abnormal,ö adds To. ôNow weÆre hoping investors have learnt.ö

For those fund managers who have raised money internationally but are acting as private equity investors who help guide companies to listing status, the current market situation is a boon. They see share prices dropping down to reasonable levels and thus are pleased to see potential for growth later û when their target companies list.

ôI think it's going to take at least a couple more months for the sellers to work their way out of the marketö says Tung Kim Nguyen, partner of Indochina Capital, which has a closed-end investment fund that invests in Vietnamese equities (at the moment, itÆs only invested in one company on the bourse, so not hurt by the current declines). ôAfter which investors will be able to refocus on the strong corporate fundamentals particularly earnings growth that we are seeing in 2007 numbers and be wowed by year-end results."
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