Stock market expected to better 2007 performance

A view of the Hanoi stock exchange Vietnam's strong economic growth is expected to push the stock market higher in 2008, improving on the index's 2007 performance, which stampeded to a record high in March.

After soaring an incredible 55 percent in just two months, the benchmark VN-Index hit a peak of 1,170 on March 12, 2007. The dramatic increase in the index prompted the securities watchdog to issue warnings about a “bubble”, or overvalued market. The share price spike, which didn't reflect the growth rate of listed companies, was followed by a readjustment period, with the VN-Index sliding to the year's low of 905 points on April 24. For the rest of the year, the stock market in the southern hub of Ho Chi Minh City rode the waves, fluctuating between 884 and 1,113 points during the last nine months of the year. However, in contrast to 2006, HCMC's VN-Index closed the year up 23 percent while Hanoi's HASTC-Index climbed 33 percent over the course of 2007. Last year more than VND90 trillion (US$5.64 billion) was raised on the stock market through initial public offering and additional share issuances, three times as much as in 2006. The number of companies listed on the exchange increased to 248 in 2007 from 192 in 2006. Total market capitalization approached $29 billion, accounting for more than 40 percent of the national gross domestic product (GDP), expected to be $70 billion last year, surpassing expectations. The government's stock market development plan had set a target for the stock market to account for 30 percent of the GDP by 2010. The number of brokerage firms operating in Vietnam increased 35 percent to 74 last year, quadruple the number of brokers in 2005. The law on securities came into effect in 2007, followed by official guidance from the government and other authorities which set out the legal framework for the stock market. Other new legal regulations to affect the stock market included the law on personal income tax, Decree No. 24 withdrawing tax incentives to equitized companies and the central bank's Instruction No. 3 that reduced lending rate against securities to less than three percent. Last year was a boom time for many sectors, with investor interest especially directed toward banking, insurance, securities, real estates, food and pharmacy. Electrical stocks, in contrast, remained out of favor. 2008 outlook rosy According to the latest report of Saigon Securities Incorporation (SSI), one of HCMC's largest brokerages, the stock market appears on course for another robust year thanks to rapid economic growth, increasing foreign investment, government equitization plans and an increase in the number of companies listed on the exchange. About 60 companies are expected to list on the stock market in the first quarter of 2008, including giant lenders like Vietnam International Bank, Vietnam Joint-stock Commercial Bank for Private Enterprises, Vietnam Export and Import Bank and Dong A Bank. Total market capitalization in 2008 is expected to reach 60 percent of the GDP. SSI's analysts indicated China, which plans to invest $219 billions in overseas markets, could boost Vietnam's stock market even further. The Chinese government has earmarked $78 billion for investment in Hong Kong, with the remaining $141 billion to be in other Asian countries. The analysts said MSCI Barra, a leading provider of benchmark indices and risk management analytics products, in October added Vietnam to an index for 12 frontier markets, putting the country on the radar screens of even more international institutional investors. The stock market's 2008 performance may be affected by monetary policy and any inflation control policies announced by Vietnam's government. SSI analysts suggested investors start the year by reviewing their investment strategy, keeping in mind the new opportunities 2008 may bring. “Sectors for possible investment include infrastructure, consumer goods, food and beverage and basic materials” the analysts said. Reported by Hoang Uy (VnAgency)