Novices push index to new high amid listing scramble

The VN-Index rose to 775.56 points last Friday, recording an all-time high since its inception on July 20, 2000, according to the Ho Chi Minh City Securities Trading Centre (HSTC).
The market is drawing many novice Vietnamese investors, who often seem to operate with a herd mentality. “A lot of them buy when prices are going up, not when they’re going down,” said Tran Dac Sinh, director of HSTC.
Heady gains have also pushed share prices sharply higher, with hungry investors often devouring new offerings within hours. Buying interest has quickened ahead of a major expansion in the market as companies scramble to take advantage of tax breaks to firms listing before the end of the year.
While Vietnamese investors may have a bullish view of the market, foreign funds remain more skeptical. Many foreigners have not been able to participate in the massive rally due to restrictions on foreign investment. Others say there are just not enough shares to go around.
“Much of the foreign-driven activity is concentrated in the large capitalisation stocks which pushes the index up. Unfortunately, we appear to have reached a stage where this buying is indiscriminate,” said Kevin Snowball, director of PXP Asset Management Ltd.
The stock selection criteria for foreign demand are “large, liquid and available” rather than being selective on the basis of value. But, according to Snowball, once the foreign ownership level is full [in the large and liquid stocks], those stocks will underperform as foreigners are no longer able to buy them.
“That will likely bring the index back down,” he said, adding that liquidity will also suffer as an offshore market is likely to then develop in the “p-notes” offered by the international investment banks, which will start to trade at a premium to the locally-listed shares.
“This premium will then attract more foreign-owned stock offshore, further reducing onshore liquidity,” he noted.
The Vietnamese bourse, with total market capitalisation now having passed $8 billion or more than 15 times its size at the beginning of 2006, has outperformed even the rampant Chinese market this year, gaining nearly 147 per cent.
The market growth reflects Vietnam’s overall economy – energetic, From page 1

fast-growing and still in the early stages of its development. It poses greater risks to investors than a more advanced economy, but also the promise of great returns.
Average daily turnover is also vastly improved, and the market is regularly more than 50 times as liquid as last year. The recent action is, however, giving a somewhat distorted view of overall strength, with as many shares down over the past month as up.
The market regulators have reasons to be very proud of their achievements this year in the development of the stock exchange. However, financial experts, contacted by Vietnam Investment Review last week, remain wary over the fast pace of growth.
“The market is certainly climbing very quickly in regards to the valuation.
If we consider comparable metrics from regional markets like Pakistan, China, Malaysia and Indonesia one could conclude that Vietnam stocks are generally over-valued,” said Andy Ho, investment director of Prudential fund management company.
Ho and other experts agreed that how the bourse’s achievements are built on next year depends on their recognition and understanding of the likely long-term impact and development of foreign participation in a restricted market.
Although it appears likely that the foreign ownership limits will be removed in “non-sensitive” sectors, serious consideration needs to be given to the future trading of shares of companies in sectors which are considered sensitive, and therefore remain restricted, or 2006 may turn out to be the peak of the local stock market’s development.
“I think that a VN-Index of 1,000 points anytime soon would be dangerous, although I would not be worried if it reaches that level toward the end of 2007,” said Snowball.




No. 792/December 18-24, 2006