Basement bargain stock prices beckon

Vietnam’s main bourse, the Ho Chi Minh Stock Exchange’s (HoSE) VN-Index, last week closed at 458.39 points on October 15, nearly unchanged from the previous week and the same as late 2009. Market liquidity also fell to an eight month low, with 23 million shares traded on average last week, the same as mid-February, this year.

Playing the waiting game will pay dividends as stocks hit the floor

The Hanoi Stock Exchange (HNX) closed last week at 119.69 points, the lowest level in 17 months and trading volumes to 10-month lows, with around 18 million shares traded daily.

Market analysts said the market was moving sideways in a tight range lacking short-term traders. The main market force is medium to long-term and foreign investors.

Analysts with Tri Viet Securities (TVSC) said the poor market liquidity was similar to the conditions in February, 2009. Since October, market traders have been indifferent to negative and positive news.

“With the current movements, we think the market is in the bottom zone, but the VN-Index will move around 450 points until new speculative money flows return,” TVSC analysts said in a note to clients, adding that by the year’s end, inflation, exchange rate risks and oversupply fears would play on investors’ minds.

Le Anh Thi, Au Viet Securities’ (AVS) investment director, added that for 2010, share dilution and oversupply fears had made stock valuations fall to very attractive levels. As of October 13, around 380 listed stocks, or 62 per cent of the total listed ones, have price to earnings (P/E) ratios of below seven.

By October 12, prices of 116 stocks out of 268 [43 per cent] on the HoSE closed lower than prices when the VN-Index plunged to a recent lowest level on August 25 and prices of 183 out of 339 stocks [54 per cent] on the HNX were lower than August 27.

“Market liquidity will remain low in recent days plus the spreading bearish market sentiment were important signals that the bottom line is near,” said Thi, adding that investors could buy and hold stocks on market dips.

Tran Thi Hai Yen, a Bao Viet Securities (BVS) senior analyst, said that the market was expected to recover after long slips. However, BVS was still not confident about a more positive market trend when Vietnamese investors were indifferent to market movements.

“The market recovery momentum needs fundamental support besides breakthroughs from foreign transactions. We maintain the view that the market will continue moving sideways in waits of support news,” said Yen.

Ho Chi Minh City Securities Corporation (HSC) analysts added that investor interest and liquidity remained low and with another  Vietnamese dong devaluation possibility.

“Any rally is likely to be short-lived. But with valuations at very reasonable levels, we recommend to accumulate positions on corrections,” said HSC head of research Fiarch MacCana.