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Investors to face difficult choices in 2012

Update: January, 09/2012 - 10:26

by Thien Ly

Vietnamese investors are facing a dilemma – what asset classes should they invest in this year?

None of them is performing well, while some, like gold, are too risky.

Bank deposits used to offer reasonable returns at no risk but interest rates are expected to head downward from the current 14 per cent, to 12 per cent initially and 10 per cent later this year, based on the State Bank of Viet Nam (SBV) 's policy orientation. On the other hand, inflation has not yet shown signs of significant decline, meaning the real interest rate on deposits will be deeply in the negative.

On December 31 the buying and selling prices of gold at the Sai Gon Jewellery Company were VND40.8 million (US$1,960) and VND41.8 million per tael of 37.5 grammes.

They were VND7.5 million lower than the peak rates of VND47-49 million a few months ago, representing big losses for many investors who had bought then.

With analysts expecting the precious metal to continue its decline, it has become a risky asset class.

What about the stock market? For an investor, 2011 was a forgettable year that saw the market's 11-year growth wiped out in one fell swoop.

There is deep gloom as both indices keep falling and liquidity remains very low. While many investors have walked out on the market after suffering heavy losses, some remain, hopeful of a recovery soon. However, the local economy and global situation have yet to offer the faintest sign of hope for 2012.

The market opened the year on a negative note, edging down while liquidity took a nosedive. The VN-Index lost 1.55 points, or 0.44 per cent, to close at 350.

On the HCMC Stock Exchange, the last session of 2011 saw a mere 20.6 million shares worth VND320 billion change hands, respectively falling 63 per cent and 40 per cent.

Brokerage house HCM City Securities Corporation said the slow start did not necessarily come as surprise since investors preferred to stay on the sidelines after the bad performance last year and the short trading month in January.

Stocks are, thus, not a particularly attractive asset class yet.

The real estate market was in the dumps during the whole of last year and it is showing no signs of recovery.

Pham Van Hai, general director of the ACB Real Estate Joint Stock Company, said the market is unlikely to recover for at least six months since credit for the sector remains tight.

The Government's plan to completely restructure the banking sector has also affected the financial market and, thus, the real estate market.

Several developers said since massive inventories had built up in the last two years, they had to sell at bargain-basement prices. Since lending rates remain very high, most individuals cannot afford to borrow to buy housing either.

Telecom market shake-up

Not only the banking sector but also the telecom services sector is opting to restructure to ensure survival.

After their strenuous efforts to retain a foothold in the bruising market, some of the smaller players ran out of gas, and decided to join forces with stronger ones to survive.

EVN Telecom kicked off the trend. Late last year the Government gave its assent to EVN Telecom's merger with Viettel, which is due to be completed this month.

The merger will see the number of mobile service providers fall to six.

According to some insiders, this M&A (merger and acquisitions) trend will continue because even six companies are too many considering the size of the market.

Besides, there are some small companies that cannot achieve critical mass to exist on their own.

Of EVN Telecom, S-Fone, Vietnammobile, and Beeline – the smaller players – it is not only EVN that faces financial difficulties but also Korean-invested S-Fone.

CDMA network S-Fone was permitted by the HCM City authorities to change its ownership model from that of a business co-operation contract to a joint venture more than a year ago. But it has yet to identify a strategic partner.

Dr Mai Liem Truc, former telecom deputy minister, said EVN and S-Fone were inefficient because of poor investment strategies and modest in corporate governance.

He stressed the need for small telecom companies to merge but saying that all changes must be based on thorough negotiations among related firms, and under governance of State administration agencies to ensure that involved firms would not have to suffer more pressure after they participate in the merger and acquisition process.

Experts also believed that Decision 55/2011 issued in October that says that the Government will hold the largest shares of only five facility-based telecom service providers. This would encourage the merger of small telecom companies in the future.

Firms pare profit forecasts

Many companies have had to factor in the not-so-bright economic scenario and tweak their production and trading strategies and reduce turnover and profit targets.

PetroVietnam Technical Services Corporation typifies the trend.

It turned in solid results in 2011, with turnover and profits well above the year's targets. But the company is cautious this year and has pruned its turnover target to VND25 trillion ($1.24 billion) and profit target to VND950 billion ($47.2 million), 4 per cent and 24 per cent down from last year.

DIC Tourist and Trade Joint Stock Company said its turnover was likely to rise by 20 per cent since it hoped to increase export of clinker, but its profit target remained unchanged.

The company has yet to even consider new investment plans for this year.

A shareholders'meeting of the Song Da Cao Cuong Joint Stock Company recently shot down a plan for a fresh issue of shares that had been approved by the company's annual general meeting last April.

The company had planned to issue 900,000 shares to raise funds for two new projects that were to cost around VND10 billion (US$497,500).

The decision not to go ahead with the issue was partly due to the stock market slump.

The company now plans to fully utilise its internal sources by cutting costs, but can only go ahead with one of the projects now. The other may be delayed, a company representative said. — VNS

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