Hanoi returns 'to value' via freefall

Wednesday, April 23, 2008
In the small Mekong Securities office tucked in narrow central Hanoi alley, a handful of Vietnamese investors peer glumly into laptop screens, watching the sluggish downward trading on the Ho Chi Minh City stock exchange.

Just a year ago, Mekong Securities, like most Vietnamese brokers, was packed each morning with local investors, pouring savings into a market that rose 144% in 2006.

These days, the office is almost deserted, except for those still trying to pull out of a market down a precipitous 42.4% so far this year.

Among them is 27-year-old Le Thu Ha, who in October 2006, amid pervasive market euphoria, quit her job at an import-export company to devote herself full-time to managing her stock portfolio. She poured about $31,000 into the market back then, but this has now mostly dissipated.

"I want to escape from this market, but it's not the right time," she says. "It's too late."

For many Vietnamese investors, the recent plunge of the eight-year-old stock market has been a big financial blow, which could potentially affect long-term long appetites for equity investment.

"Many of the new entrants into the market have the feeling they lost a huge amount of money within a very short period of time," says Le Song Lai, deputy general director of the State Capital Investment Corporation, which manages Hanoi's interests in some listed state companies.

"They tried to recoup their loss, but the more they tried, the more they lost."

Yet Viet Nam's stock market appears to have been the inadvertent collateral casualty of Hanoi's recent rearguard action to fight soaring inflation and to cool the frothy property market, through a sharp monetary tightening.

"The sucking of liquidity out the market has frozen the real estate market, but the unintended consequence has been to hit the stock market," says Dickon Verey, head of trading at Mekong Securities.

The market - which hit its all-time high in March 2007 - was already losing steam late last year, amid restrictions on bank lending for share purchases, a slew of new rights issues and worries about the impact of a global economic downturn on Vietnam. The market still ended 2007 about 25% up.

But stockbrokers and fund managers say the February decision by the State Bank of Viet Nam, the central bank, to suck $1.26bn out of the financial system - through a mandatory bond issue to commercial banks - sent the market into freefall.

Foreign investors were also shut out from purchasing shares by their inability to access local currency, as the central bank stopped buying dollars.

Since then, regulators have been frantically trying to bolster investor confidence, with measures including narrowing the daily trading band.

In early March, the SCIC also begun selectively buying shares as a "public service" to shore up the market, though Mr Lai said he was barred from providing details of the purchases.

Foreigners are once again picking Vietnamese blue chips, which are now trading at average attractive P/E multiples of 13 times earnings, compared with multiples of about 35 at the market's peak.

"For a long-time, the price of many shares was inflated - it did not reflect the true, intrinsic value of the shares," said the SCIC's Mr Lai.

"Now the market is returning to its true value. We do not say 'it's a downturn' but it's a return to the true value."

But Vietnamese investors trade on sentiment, and getting them to look at value won't be easy. (Amy Kazmin - Financial Times)