Stocks cannot advance in unstable macro-economy

Analyzing the stock market and the current influential factors, Trinh Hoai Giang, deputy general director of the HCMC Securities Corp. (HSC), said stocks could hardly soar from now to the year’s end as long as the macro-economy remained unstable. In a recent meeting with the Daily, the expert mentions factors that hinder the equity market from fast recovery. Excerpts:

The Saigon Times Daily: There have been favorable macro-economic conditions like low inflation in May and June and deposit rates down five percentage points, yet the stock market was stagnant in the last two months. What is the reason for this in your opinion?

Trinh Hoai Giang: I think the macro-economic signs are not as positive as seen on the surface.

Specifically, it was forecast that this year’s inflation would not be high. Inflation will rise by 6-7% this year. This currently shows that prices are stable, but the chance of prices picking up again is unknown. Falling inflation is attributed to objective factors such as dwindling global fuel prices and the global economy facing a risk of downturn. As for the Vietnam economy, the six-month growth is only 4.3%, which while keeping prices stable paints a gloomy picture with poor production and unemployment being major troubles.

As such, even though inflation went down, aggregate demand and purchasing power of the economy did not prosper. Given that credit did not grow, business performances would get worse in the third and the fourth quarters. These show that there is no support for stock indices to increase until the end of the last quarter because when businesses are struggling, investors are not cheerful to buy stocks.

In addition, foreign investors are mainly selling stocks instead of buying like what they did last year. This affects the psychology of local investors. They consider a market without foreign capital an unattractive market.

Therefore, it is not strange when the stock market did not pick up in the last two months.

As deposit rates dip, many banks said individual savings are on the downtrend. Then, will cash flow into the stock channel?

– Cash rotation is slipping, from two times in the previous years to 0.8-0.9 time at present, choking off the cash flow into the economy. Indirectly, the stock market is impacted. But it is unknown which channel the cash flow would switch to. In my opinion, investors now have many options. They have gold to mortgage to get money for investment, or use their saving books as security for loans for investment in real estate… This means cash flow can swiftly swap their destinations and it is difficult to identify where cash is flowing into. Investors only care which channels are profitable. For example, if the stock market is potential, investors can mortgage their saving books and pour the borrowed money into stocks. The reason why cash is not flowing into the stock market is because they have no confidence in the market’s rally.

Foreign investors are very concerned about forex rates, which are less volatile over the past time, but it seems that there is no new foreign capital running into the stock market of Vietnam, except for some big M&A deals. Could you explain this situation?

– Forex rates are temporarily stable as the central bank has raised forex reserves, and I think forex rates will remain stable until the first quarter of next year. Gold prices are also less volatile, ranging around US$1,600 per ounce. In Vietnam, gold will be strictly controlled under Decree 24 on gold production and trading management. This will help stabilize forex rates. Trade deficit could hardly surge this year, and thus forex rates would only inch up 1-1.2% this year.

As for foreign investors, they do not look at the six-month performance, but longer term, and with Vietnam’s economic structure, they do not have confidence in sustainability, so the possibility of high inflation returning is real. Therefore, stable forex rates only make foreign investors “less worried”, but it is not enough to make them feel assured about disbursing more capital. At HSC, no new foreign investor has opened account and no old investor deposit more money into their accounts.

Would the supporting policies from the Government, like bailout package or preferential lending rates, be able to improve the performances of listed firms in the coming time? To what extent will these results affect the stock market?

– I expect the aforesaid supporting measures will help stimulate the aggregate demand and remove the difficulties for enterprises, but this is a scenario of early next year, not this year. The Q2 business results would be lackluster as enterprises have been suffering high lending rates and huge inventories.

In my opinion, from now to the year’s end, business performances would not rosy. Bad debts will prevent credits from coming to enterprises. So far, this issue has not been settled. And the real estate market will not see any significant change in the next six months. I think GDP growth would only reach 4.5-5% this year, so the chance for the stock market to pick up strongly is slim. Moreover, if the European market continued to face problems, foreign capital inflows to Vietnam would remain low, bond capital would also in troubles as interest rates will drop further by year-end. There is no ground to say stocks would go up 20-30% like many experts have forecast. The biggest concern of investors now is improving liquidity. If this was well done, the market liquidity would receive better support. In addition, it is necessary to strictly handle false and late information disclosure.

Reported by Thanh Thuong

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