Rich pickings for long-term players

Shrewd investors with a long-term view can prosper amid today’s climate

The VN-Index last week closed at 454.84 points after reaching its low of 440 points on August 13. With this level, VN-Index has lost around 10 per cent this year to date, according to Ho Chi Minh Stock Exchange statistics.

Analysts with Saigon-Hanoi Fund Management Company (SHF) said that the imbalance between market demand and supply was the key reason behind the recent market plunges.

SHF statistics show that around VND18,000 billion worth of new shares, basing on face value of VND10,000 each share, have been issued by listed firms in the year to date and around additional VND13,000 billion in new shares will be issued until the year-end.

A recent Sacombank Securities (SBS) report said that commercial banks would also need to issue new shares to raise at least VND65,000 billion to meet minimum VND3,000 billion chartered capital by late 2010, in which 23 small-sized banks would absorb VND40,000 billion.  

“The increasing supply via new shares will be the key risk for the stock market by year-end,” Quach Manh Hao, Thang Long Securities Company’s (TLS) deputy general director, said in a note to clients last week.

Pham Do Chi, a former senior economist with International Monetary Fund (IMF), added that Vietnam was on the way to achieving 6.5 per cent gross domestic product (GDP) growth for 2010, but the trade deficit remained high at $6.7 billion  and Vinashin’s troubles raised questions over ineffective public spending.

Therefore, the stock market and the exchange rate will face tough challenges for the time being.

“The VN-Index likely to move lower, testing 420-450 point range, indicating the falls in money flows of both domestic and foreign ones, due to concerns from macro risks,” said Chi.

Along the oversupply fears, the State Bank’s Circular No 13  that regulated banks to tighten lending to securities, was also among reasons behind the market fall, according to SHF analysts, who however said that after witnessing the sharp fall in equities recently, all the bad news over imbalance market supply and Circular 13 fears were fading and the market would consolidate and move sideways at around 440-450 points range before deciding a  new trend. 

“The 440 point level for the VN-Index is a strong support and reasonable level for long-term investors to cash in,” said SHF analysts, adding that corporate earnings were also positive in the first half of this year.

“We recommend [investors] sticking to stocks with reasonable price to earning (P/E) ratio with strong earning growth from its core business,” said SHF analysts.  

Phan Van Ha, general director with Artex Securities, said that the current share valuations were reasonable but due to the oversupply issue and the ineffective uses of proceedings, the market is under falling pressure until positive macro signals emerge.

“We are optimistic for medium to long-term outlook but [investors] need patience,” said Pham Thanh Binh, PetroVietnam Securities Incorporated (PSI) chief analyst and head of research.