Liquidity forecast to improve with stock exchange growth

illustration photo source: dddn

Hoang Manh Huy, head of research at Saigon – Hanoi Securities, predicted that the VN-Index would rise to 570 points by the end of the second quarter, which is a 19-point increase compared to the end of March. Likewise, in similar reports, Bao Viet Securities and BIDV Securities also expected the stock market to advance after the long holiday, both in terms of liquidity and VN-Index points.

The first reason for upbeat predictions is increased net buying from foreign investors. Saigon – Hanoi Securities predicted that foreigners would remain on the buying side for the second quarter after a stable period of constant net selling in March. In the week before the holiday, overseas investors have indeed bought a total amount of VND580 billion ($27.6 million) and foreign ETF funds maintained their premium status.

“More foreigners will be drawn to the Vietnamese stock market due to the high annual growth rates of firms, which usually stands at an average of 15 to 20 per cent. Moreover, Vietnamese stocks are still much cheaper than their regional counterparts. Indeed, the price-per-earnings ratio (P/E) for Vietnam is currently 17 to 20 times lower than that of nearby markets such as Singapore and Malaysia,” said Johan Nyvene, CEO of Ho Chi Minh Securities.

It is also expected that the foreign ownership cap will be removed later this year after Decree 58 by the State Securities Commission obtains approval. This will be an important factor to trigger foreign investors’ interest and help push liquidity.

However, Nguyen Hong Khanh, head of research at Sacombank Securities, suggested that besides removing the cap, more services and products should be offered to foreign investors to whet their appetite.

“For now, foreigners’ stakes only account for 22 per cent of the total market capitalisation of Vietnamese firms and 10 per cent of daily trading. I believe that to increase this figure, we should diversify products for the stock market, have more large-sized firms listed as well as easing restrictions on foreign stakes,” said Khanh.

Experts further noted that positive macroeconomic outlooks will also help boost the stock market. Specifically, the GDP is forecast to increase by 6.2 per cent this year, inflation will also remain under 5 per cent and the upcoming free trade agreements will increase Vietnam’s international engagement.

“The stock market will reflect this growth because throughout the past few years, it has always advanced at a higher rate than the GDP,” said Nyvene.

Lastly, trading will increase thanks to the upcoming wave of initial public offerings (IPOs), mainly from equitized state-owned enterprises. According to Hoang HaiAnh, CEO of Petro Vietnam Securities, these IPOs will increase supply on the domestic stock market and give investors a wider range of choice. As a result, foreigners/investors are more likely to engage in trading activities and liquidity will experience a substantial rise.

Other reasons for upbeat predictions include lower deposit rates in banks, which will encourage a higher capital flow into the stock market. Positive news from firms’ annual general meetings, 2014 dividends and first quarter business results will also assist liquidity growth.

In the week before the holiday (April 20-24), the VN-Index added 14.29 points to close at 568.32 points. Trading volume stood at VND1.487 trillion ($70.8 million). Meanwhile, the HNX-Index rose marginally from 83.29 to 83.61 points and recorded a trading volume of VND539 billion ($25.6 million).

For the first quarter of 2015, the Ho Chi Minh City stock market experienced a 36 per cent drop in liquidity. This sharp decline is attributed to the implementation of Circular 36, which restricted capital flow from banks to securities firms, together with the on-going restructuring processes of banks and foreign funds’ portfolio.