The Hong Kong and Shanghai Banking Corporation (HSBC), in its report, ‘Vietnam Monitor’ issued in January 2009, predicted that 2009 would be another difficult year for the regional market in general, and Vietnam’s market in particular.


HSBC predicted that the VN Index will be at 300 points by the end of the year.


Vietnam, the worst market in Asia in 2008


HSBC believes that Vietnam’s stock market has become smaller which does not catch the attention from foreign investors as it did in the past.


In 2008, VNIndex dropped by 69%, the sharpest fall among the stock markets in Asia. MSCI of Asian market, not including Japan, saw a smaller decrease by 53% in the last year.


In the last six weeks of 2008, the MSCI’s markets recovered by 23% while Vietnam’s stock market decreased by 6%.


HSBC’s experts believe that Vietnam’s stocks have been weeded out from the investment portfolios of foreign institutional investors. There is no Vietnamese listing company with the market capitalization value of over US $1billion of which foreign investors can purchase more shares.


In fact, there are only five listing companies with the market capitalization value of US $500 million and higher which still have room for foreign investors. However, these share items are just suitable to small investment funds.


The trading volume on the market has been on the decrease. On the Hanoi bourse, the trading volume in December was just US $14 million a day.


Only three foreign investors offered to purchase Vietinbank’s shares at the bank’s IPO held in December 2008.


In the latest report, HSBC has lowered the suggested investment ratio in Vietnam’s stocks to 0% of investment portfolio. Even if global investors want to take venture investment, other Asian markets would still be more attractive than Vietnam.


Five problems


Which factors can help the stock market have a more successful year in 2009?


The report pointed out five factors:


First is the profit of enterprises. One of the biggest problems of Vietnam’s stock market is the lack of transparency of financial reports. Besides, only year-end financial reports are audited and the unexpected big asset losses are only announced at the end of the year.


Second are the equitisation programs. The market has not seen any big equitisation case after the equitisation of Vietcombank in late 2007.


HSBC believes that the IPO of big corporations in key business fields of Vietnam, including petroleum, telecommunication and banking, if they are well organized, will attract the high attention from foreign investors which will help make the market more prosperous.


Third is the bank interest rate. Though the VND basic interest rate has been decreasing in the last time, the market interest rates remain relatively high. Meanwhile, Government’s officials still warn about the risks of high inflation.


Besides, the worries about the devaluation of VND and the lack of dollars in Vietnam have made foreign investors more hesitant.


Fourth are the share prices. Though Vietnam’s stock market has been falling in the last two years, the shares have not become cheap at all.


The current P/E which has been calculated based on the reports on companies’ business result is 9x. Supposed that EPS decreases by 10% this year and remains unchanged the next year, the P/E of the next twelve months would be 10.1. It is likely that foreign investors will only return to the market when the P/E of Vietnam’s stock to drops further.


Fifth, and finally, is the attraction of the mechanism for domestic investors. One of the reasons that made the stock market gloomy in late 2008 was the information about the imposition of the personal income tax on securities investors.


HSBC has predicted that VNIndex would be at 300 points by the end of the year, while it was 316 points at the end of 2008.