The VN-Index, Asia’s worst performer in 2008, may become one of the region’s biggest gainers this year as locals turn to stocks amid the country’s economic recovery, Kim Eng Vietnam Securities said.


The economy expanded 3.1 percent in the first quarter, according to the Hanoi-based General Statistics Office. The market has rallied 81 percent since reaching a four-year low on February 24, becoming Asia’s best performer in the period. The measure had dropped 66 percent in 2008.


Cheah King Yoong, head of investment research at Ho Chi Minh City-based Kim Eng Securities, said, “The country is awash with domestic liquidity because of wealth creation due to its strong economic growth.”


The interest rate cuts have helped trigger the advance in stocks this year, he said. Total outstanding loans increased 15 percent from January to mid-May, Vietnamese Deputy Prime Minister Nguyen Sinh Hung said on May 20.


“We may be one of the few nations to have positive growth, and fundamentals are not that bad,” Cheah said.


Domestic money is “trapped” in the country with the currency controls, and those funds have been invested in the stock market, Cheah said. It is difficult to estimate the volume of domestic funds since fewer than 20 percent of Vietnamese have bank accounts.


Where’s the VN-Index headed?


“We cautiously expected the VNIndex to end this year at 450-470,” said Johan Nyvene, General Director of the Ho Chi Minh City Securities Co.


The VN-Index on the Ho Chi Minh Stock Exchange has gained 35.7 percent so far this year.


He said the market is unlikely to fall back into negative territory since the economic turmoil was not as severe as investors had expected and corporate earnings in the early part of the year only fell slightly.


Many investment funds are sitting on a pile of cash and recent surges in gold prices would cause a large amount of cash to pour into stocks, he said.


But Nyvene warned that the upward trend may not last long.


“Most listed companies’ first-quarter results have been released. There is only some news that can support the market’s winning streak. The VN-Index has broken above the resistance level of 420, but we expect the market to make a sharp correction from now until the end of the year,” he said.


Domestic investors are withdrawing from the property and gold markets to jump in stocks, according to State Securities Commission Vice Chairwoman Vu Thi Kim Lien.


The number of new trading accounts at brokerages has surged by more than 20,000 this year, she said.


Foreign investors have meanwhile started buying heavily after dumping shares early this year, she said. They bought for a net US$21.6 million through last month and in the first week of this month.


“The rallying market is reflecting investor speculation of a domestic and international economic recovery this year. But the recent surge on the market seems to come from over-optimism,” she said.


Nyvene said long-term investors should buy blue chips making consistent profits, such as dairy firm Vinamilk, oil firm PV Drilling and PetroVietnam Fertilizer and Chemical.


“If you opt for short-term buying, financial, property and technology stocks are the best choice as they usually move up sharply during a rally,” he said.