Tuesday, October 25 2016


Falling liquidity leads to cause for concern

Update: May, 11/2015 - 08:22

Investors follow transactions at Rong Viet stock trading floor in HCM City. Analysts warn that investors should be more cautious this week due to concerns over low liquidity in the two markets. — VNA/VNS Photo Pham Hau

HA NOI (VNS) — Investors should be more cautious in this week's trades, as the market is tending to move sideways due to widespread concerns about low liquidity in the two markets, warned stock analysts.

Though shares posted gains in three out of five sessions last week, steep falls on both stock exchanges on Monday continued to restrain the market's recovery.

On the HCM Stock Exchange, the benchmark VN-Index lost a cumulative 1.4 per cent to end Friday's session at 554.51 points. Meanwhile, the HNX-Index on the Ha Noi Stock Exchange fell 2.95 per cent over the week, ending Friday at 80.29 points.

Both markets plunged steeply early last week, following the release of negative information, including the return of large debts in the banking system, as well as fuel price hikes. However, investors reacted positively to the depreciation of local dong on Thursday, coupled with rising purchases from bargain investors that helped lift the markets.

Additionally, the cheaper prices of many stocks stirred bargain investors, which helped promote liquidity.

The trading volume in HCM City's market surged 159 per cent over the previous week, averaging more than 92 million shares valued at VND1.423 trillion (US$65.6 million). The growth rate was more modest in Ha Noi's market, as total volume increased only 30 per cent over the week, averaging 43 million shares worth over VND480 billion ($22.1 million).

According to Nguyen Vu Phong, deputy director at Seabank Securities Co, the depreciation of dong, though occurring earlier than forecasted, was still within expectations of investors and financial analysts, and that is why this had little impact on the market.

Phong said the VND/USD rate continuously moved near the ceiling in recent days and this pressure, accompanied by a rising trade deficit which reached $3.1 billion in the first four months of this year, made the forex rate adjustment inevitable for the State Bank of Viet Nam.

The depreciation of the Vietnamese dong is expected to promote the country's exports and attract more foreign capital. However, this decision will also create higher pressure on inflation, public debt and cause imports to be more expensive.

Foreign investors seemed unaffected by this decision. Total value of their holdings decreased by some VND2.6 trillion (almost $120 million) after the dong lost 1 per cent of its value, but foreign investors still progressively purchased shares in the two markets.

The foreign sector was responsible for a total net buy of VND576 billion ($26.5 million) in both HCM City and Ha Noi's exchanges last week, with a focus on bank stocks and blue chips. Their continuous buys also eased domestic investors' psychology and supported the uptrend in the market.

Luong Bien Nhan Quyen, head of the Individual Client Advisory Division at Mekong Securities Co, said the market outlook was bright; particularly the price-earning (P/E) ratio of the Vietnamese market was still somewhat less expensive than other neighboring markets.

He predicted foreigners would continue their net buying streak in the coming sessions.

While investors' psychology was less pessimistic, analysts at many security firms still warned investors to be cautious in trades, as the market remains volatile with up and down sessions alternating throughout the week due to low liquidity.

"Signals to support a sustainable uptrend at the present time are still unclear," analysts at VNDirect Securities Co wrote in a note, predicting the VN-Index would fluctuate some 540-560 points. — VNS

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