Fund manager sees ‘trying times’ ahead for stock market, economy

Thursday, May 15, 2008
The Vietnamese stock markets and economy will struggle further in coming months, with corporate margins and business plans likely to suffer as a result, a Vietnam-focused fund manager told investors.

The Ho Chi Minh Stock Exchange’s VN Index fell Wednesday for an eighth trading day to the lowest close since August 2006, and is down 49% this year.

Inflation rate is at the highest level since at least 1992, while the country’s trade deficit almost quadrupled in the first four months of this year.

In this scenario, HCMC-based VinaCapital Investment Management Ltd. said in a monthly note to investors posted on its Web site, “The next few months will continue to be trying times for both the market and the economy.

“All economies go through growing pains, and we remain positive about the medium- to long-term outlook.”

Inflation was “very high,” creating a restrictive environment for banks, Vinacapital, which manages three UK-listed funds, said.

“Margins are decreasing with banks borrowing short at high interest rates and lending long mostly at past lower rates.

“The high lending rates along with State Bank [of Vietnam]-imposed credit limits and the international economic slowdown will likely affect many business plans this year.”

Loan portfolios

Banks’ loan portfolios will probably “decrease sharply,” as the level of deposit rates forces them to lend at rates as high as 22% “to make a meaningful profit” the note said.

Le Minh Hung, director general of international cooperation at the central bank, speaking at an Asian Development Bank forum this month said the government was now targeting economic growth of 7% this year, down from a previous forecast of 8.5 to 9%.

Standard & Poor’s Ratings Service this month cut its outlook on Viet Nam’s credit rating to negative from stable, citing “rising risks to macroeconomic stability from an overheating economy.”

“Given the unproven risk-management capability of domestic banks, an unexpectedly severe slowdown in economic growth could see sharply higher loan losses at many of these institutions,” it said.

“If the subsequent regulatory response is inadequate, this could potentially develop into a situation of systemic financial distress that could only be resolved at substantial cost to the government.”

Indochina Capital Viet Nam Holdings Ltd. said in an update to investors posted this month on its Web site that the government’s policy transparency in response to fighting inflation had been “poor.”

“The market has been left to speculate [about] the seriousness of the government’s intention to combat inflation with tougher measures including severe reductions in fiscal spending and exchange-rate liberalization, which would likely lead to a substantial appreciation of the Vietnamese dong against the dollar,” Indochina said.

STOCK BRIEFS

Agrochemical firm posts higher net

General Materials Biochemistry Fertilizer Joint Stock Company announced Wednesday that its first quarter net income rose to VND14.3 billion (US$884,900), a 31% increase from VND11 billion the previous quarter.

The firm, which produces fertilizers and other agrochemical products, said the net rose because of a spike in market prices.

Pha Lai executive raises stake

Dam Minh Duc, a member of the Pha Lai Thermal Power board, raised his stake from 1.96% to 2% by buying 36,000 shares out of one million he registered to buy, the Ho Chi Minh Stock Exchange said on its Web site Wednesday.

Bulb maker reports shining first quarter

Rang Dong Light Source and Vacuum Flask said its first quarter net income jumped 167% from the previous quarter to VND32.6 billion (US$2 million).

The firm, which manufactures fluorescent lighting products and thermos bottles, said it had cooperated with strategic partners to stock up feedstock before prices rose, helping keep costs low.

Tan Viet cuts stake in concrete maker

Tan Viet Construction Co. Ltd. last week sold 860,465 shares in construction materials producer 620 Chau Thoi Concrete Joint-Stock Company to reduce its holding from 18.02% to 10.2%, according to a report on the Ho Chi Minh Stock Exchange’s Web site Wednesday.

Closed-end fund executive halts stake sale

Huynh Que Ha, deputy chairman of closed-end fund VF1, reduced her stake in the fund from 5.65% to 5.67% by selling 14,000 shares, the Ho Chi Minh Stock Exchange reported on its Web site Wednesday.

Ha planned to sell three million shares but called off the sale February 14 after selling the 14,000 shares because the market was depressed.

Pitco’s pre-tax profit rises on business expense’s decrease

Petrolimex International Trading Joint Stock Company said on the exchange’s Web site Wednesday its first quarter pre-tax profit reached VND13 billion (US$804,704), a 160.57% quarter-on-quarter increase from VND5 billion.

The company, which is industrial and agricultural commodities trader known as PITCO, said business expense in the first three months of the year was less than last quarter, boosting the pre-tax profit.

Tan Tao says first-quarter profit up 29%

Tan Tao Investment Industry Corp., an operator of industrial zones, said the net profit for the first quarter ended March 31 rose 29% year-on-year to VND101 billion (US$6 million), according to a statement posted on its Web site. (Bloomberg)