Cautious approach taken to new year

Vietnam’s stock markets have traded cautiously in a narrow range during early 2011 as investors wait for clearer signs from government economic policies.

Ho Chi Minh Stock Exchange (HoSE) closed 2011’s first week at 481.86 points on January 8, nearly the same as at 2010’s end at 484.66 points. Market liquidity declined sharply as investors held cash on the sidelines.

Market analysts said contrary to the general bullish movements of the world stock markets, Vietnamese equities started the year with sluggish transactions and strong declines in liquidity as investors waited to see the government’s detailed new policies.

Tran Thi Hai Yen, Bao Viet Securities Company’s (BVSC) senior analyst, said in terms of a macroeconomic perspective, BVSC believed that the government’s policies in 2011 would be more prudent, giving priority to macroeconomic stability rather than growth targets.

“The cautious sentiment will continue to dominate the market when investors seemed to be hesitant between buy and sell in the short-term,” said Yen, adding that net asset value push activities of institutional investors in late 2010 have brought “side-effects”.

Yen said the largest risk in January would likely remain inflation with the Lunar New Year looming. In terms of a monetary policy, it will be difficult to expect strong credit growth with lending interest rates at 14-16 per cent in 2011.

“Given the potential inflationary risks, the VN-Index is expected to have breakouts when the consumer price index (CPI) shows signs of decelerating. On such a basis, we recommend investors hold the current portfolio and consider buying in if they have a high cash proportion,” said Yen.

Quan Trong Thanh, a Mekong Securities Company analyst, said a disappointing 2010 had ended, but future opportunities were huge. However, for long-term investors, they need macroeconomic stability, which the government considered a top priority for 2011.

“Cautious investors still wait to see how the government will carry out its commitments, but we think they [commitments] are a positive signal,” Thanh said.

In a related development, there have been a few interesting developments on the macro front. Firstly, market participants have seen a chorus of calls from official sources for lower interest rates which suggests that once the CPI peaks, the pressure to ease monetary policy will quickly grow.

“This will be viewed positively by the stock market and we remain positive,” said Ho Chi Minh Securities Corporation’s head of research Fiarch Mac Cana, adding that the 2010 external imbalance was just $4 billion, much lower than that of $12 billion in 2009.