Vietnam markets extend gains on government measures

Vietnam stocks opened more than 4 percent up and the dong rate hit a 16-month high Monday, after the central bank widened the currency's trading band, its latest effort to tame inflation and restore investor confidence.

The Ho Chi Minh Stock Exchange extend Friday's gains to open 4.33 percent up at 667.88 points on Monday, rising for the third straight trading day. The main index stands 15 percent up from last week's 16-month low.

"The good news has been well received and now everyone is certain that the markets will at least regain what it has recently lost," a market analyst at Habubank Securities in Hanoi said.

"We expect to see some good performances this week," he added.

Still, the developing $17.8 billion exchange is 27 percent down this year after a series of central bank directives to dry up dong liquidity caused a sell off by local retail investors, who dominate the market.

The smaller, over-the-counter Hanoi Securities Trading Center also opened higher on Monday, up 6.84 percent at 240.98 points.

Last week the government investment arm, the State Capital Investment Corporation, said it had begun buying back shares on both markets, but it declined to identify shares purchased.

Domestic retail investors have bailed out in the past month following policy moves aimed at reducing inflation. The consumer price index rose in February by 15.7 percent from the same month last year.

The State Bank of Vietnam has injected more money into the banking system and loosened its grip on the dollar/dong rate by widening the trading band to +/-1 percent from +/-0.75 percent to allow more flexibility for banks to absorb U.S. dollar funds from foreign investors.

The measure, announced on Friday, took effect on Monday and the central bank set the official dong rate at 16,025 per dollar, its highest in more than 16 months.

The government also lifted the cap on foreign investor share ownership in unlisted non-bank companies to 40 percent from 30 percent as it moved to attract more investment

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Government explores options to get a grip on inflation

Vietnam's government is looking at all the options to fight inflation, from allowing more exchange rate flexibility to raising interest rates and issuing more bonds to mop up liquidity, officials and economists
said.
A bank teller handles money as the government tries to handle inflation by soaking up liquidity

February’s 15.7 percent inflation rate was a “wake-up call” to the government after the economy overheated last year, but a policy document and government statements this week showed Hanoi was taking the problem seriously, analysts said.

“One of the challenges facing the government is to reassure investors about the direction of economic policies, especially given the hype surrounding Vietnam in recent years,” said Benedict Bingham, the International Monetary Fund representative in Vietnam.

To fight inflation, the State Bank of Vietnam (SBV), the central bank, has tightened monetary policy and at the end of last year it started to allow the dong to strengthen after pushing the currency down gradually against the dollar for years.

In an attempt to calm the stock market, the government’s investment arm has started buying shares after retail investors baled out following the central bank moves to soak up liquidity.

One Western banker described both the liquidity squeeze and the stock market correction as healthy.

But he added: “I don’t think the inflation issue will go away soon, however, and the SBV has rightly recognized through recent steps that the currency is going to have to take more of the strain in the short term.”

Vietnam’s measures to curb inflation, which has quickened to a 12-year high, may be “crude” but will help the country in the long term, the Asian Development Bank’s country director said Friday.

“They don’t have sophisticated tools, so what was done was a bit crude, and the market has certainly reacted sharply,” said Ayumi Konishi, ADB’s country director for Vietnam, in a lecture at Singapore’s Institute of Southeast Asian Studies.

He was referring to the Ho Chi Minh Stock Exchange index, which has tumbled 30 percent this year as authorities tightened monetary conditions.

Konishi said short-term volatility in Vietnam’s financial markets was necessary for “consolidation,” so the Southeast Asian country can address key issues such as inflation and its widening current account deficit.

This will build investor confidence for its medium- to long-term growth prospects, he said.

In the short run, the market will continue to be driven by sentiment, Konishi said.

Strong potential

Despite inflation running at the highest levels in 12 years and a tripling of the trade deficit in the first two months of 2008, economists say they still believe in the potential of Vietnam’s economy, which is growing at 8 percent a year and attracting record levels of foreign investment.

The Southeast Asian country embarked on “economic renewal” in 1986.

Last year, after a massive effort to change its laws on business and trade, it was admitted to the World Trade Organization.

Standard & Poor’s credit analysts said in a note that “heat generated by blistering economic growth may soon become too uncomfortable.” But it said it did not expect high inflation to result in a sovereign credit rating downgrade in the next one or two years unless inflation accelerates further.

In statements on the government website (www.chinhphu.vn) Deputy Prime Minister Nguyen Sinh Hung said the central bank should not maintain the present dong deposit interest rate cap of 12 percent imposed in late February, adding this “needs to be reduced gradually in pace with the market conditions.”

Last month the central bank raised banks’ compulsory reserves.

It also raised three main interest rates, last changed in December 2005.

Economists say Vietnam may need to consider using an array of monetary policy instruments and more sophisticated adjustments.

“It is not easy to explain the preference for quantity- over price-based measures like interest rates,” said Jonathan Pincus, senior economist at the United Nations Development Program in Hanoi.

“Part of the reason may be a concern that higher interest rates would not slow credit growth fast enough, or that they would have to rise very high to have much effect.”

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Listed companies should refrain from selling shares, group says

After an urgent meeting to find ways to lift the ailing stock market, Vietnam’s Listed Companies Club Friday called on directors and executives to stop dumping shares.
Investors watch the market rally on the trading board at ACB Securities Corporation in HCMC Friday

The stock market, which has lost nearly a third of its value this year, was not only worrying investors but also the companies listed on the benchmark VN-Index, Listed Companies Club Deputy Chief Nguyen Bang Tam said.

The Ho Chi Minh Stock Exchange’s deputy director Le Nhi Nang said the market had fallen too sharply this year.

“Previous falls were caused by deficit of supply and demand,” he said.

“But the recent losses were caused by high inflation and a shortfall of dong.

“The benchmark index, which was expected to surge from the 817 mark after the Tet (Lunar New Year), plunged to 583 points.

“The market rallied on March 6 and 7 but we have to wait for several more trading days to see if the market is stable,” Nang said.

Nang said 20 listed firms had registered to buyback shares from now to March.

“However, the size of the buybacks was equivalent to the number of shares sold recently by directors and executives,” he said, urging big shareholders to stay calm.

The Listed Companies Club, which represents all the firms listed on the benchmark VN-Index, was formed in 2005 to work with the securities watchdog to improve the stability of the stock market.

“The listed companies should reduce the supply on the market. Boards should halt issuing additional shares,” Deputy chief Tam said.

“The listed firms should only sell stakes to strategic partners if they are in need of investment. In addition, the Listed Companies Club appeals to members to refrain from selling their holding stake.”

Tam also asked listed enterprises to announce how they plan to counter the rising petrol prices to build up investor confidence.

He said the club had asked the Ministry of Finance and the State

Securities Commission (SSC) to set policies to streamline the process for listed companies to get approval for share buybacks.

The club was also lobbying the government, the Finance Ministry and the central bank to allow foreign investors to buy stock using foreign currencies, Tam said.

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Vietnam to widen dong trading band to slow inflation

Vietnam plans to widen the dong's trading band to 2 percent, giving more scope for the currency to gain and slow the fastest inflation in more than 12 years.
Deputy Prime Minister Nguyen Sinh Hung told the central bank to widen the band for the dong from 0.75 percent, according to a directive posted on the cabinet's Web site late yesterday.

Increases in global prices quickened inflation to 15.7 percent in February from a year earlier. Allowing the dong to strengthen would reduce the cost of importing dairy products, cooking oils and petroleum goods.

"Inflation is generally a problem in Vietnam, but it's specifically a problem in food prices, especially imported food, and oil prices," said Matthew Hildebrandt, an economist at JPMorgan Chase Bank in Singapore. "You need to find a way to limit the impact from imported goods."

Consumer prices jumped about 6 percent in January and February alone, "posing great challenges" for the Vietnamese economy, according to the statement. ``Given global prices are set to increase more, this may have a strong impact on Vietnam's socio-economic development," it said.

The timing of the change hasn't been decided yet, Nguyen Van Giau, governor of the State Bank of Vietnam, said by telephone today from Hanoi. The bank has to discuss implementing the directive with the government, he said.

Dong strengthens

Increases in prices of commodities and energy have driven China's inflation to 7.1 percent, an 11-year high, and gains in Indonesia's consumer prices to 7.4 percent, the most in 16 months. Both currencies though have allowed their currencies to appreciate, in contrast with Vietnam, which has a policy of keeping the dong weak to make exports competitive.

The dong strengthened 0.02 percent to 15,922 against the dollar as of 12:25 p.m. in Hanoi, heading for the highest close since April 4, 2006. Vietnam has allowed the currency to add 2 percent in the past six months. The State Bank of Vietnam sets a daily dong rate and allows the currency to trade a fixed amount on either side of that.

Vietnam's year-on-year inflation accelerated to the most since September 1995 last month, after quickening to 14.11 percent in January. Imports rose 64 percent last month, with a 121 percent increase in milk and dairy products, and a 157 percent surge in fat and oil imports.

Bank reserves

JPMorgan Chase Bank expects inflation to average 16.1 percent this year, compared with around 8.5 percent in 2007, and the dong to strengthen about 1 percent, according to Hildebrandt.

Deputy Prime Minister Hung, acting on behalf of Prime Minister Nguyen Tan Dung who is visiting the U.K., also asked the State Bank to consider increasing the amount of reserves that banks have to set aside to reduce liquidity in the economy.

The central bank on Jan. 16 ordered banks to raise the amount of money they keep on reserve to 11 percent from 10 percent, the first increase since June 2007.

The central bank last widened the dong's trading band in December, allowing the currency to end an 11-year run of depreciation.