Dimmer days for young, once-buoyant Vietnam stocks

HANOI, Jan 27 (Reuters) – The glow has dimmed on Vietnam’s young stock market and foreign fund managers and traders say a recovery from a dire start to the year is unlikely without an easing of ownership rules and more accurate valuations of new listings.

While this month’s losses of almost a fifth mirror declines in other regional indexes, domestic influences such as tighter monetary policy and caps on foreign ownership are seen as more significant than the global credit crisis and talk of a U.S. recession that have weighed on more developed markets.

Foreign investors, who contribute only 20 percent of trading volume, had hoped several new large share offerings would spur capital markets development in Vietnam, where economic growth is humming along at 8.5 percent a year.

But this month, market regulators in the communist-run country urged companies to consider further delaying share issues because they believe the stock market may not be able to absorb the securities on offer.

The Ho Chi Minh Stock Exchange index .VNI has fallen 16 percent in January after gaining 23 percent in 2007. It closed up 1.6 percent at 776.04 points on Friday, after sinking to a one-year low the previous session.

Outside the French-colonial era colonnaded building that houses the trading floor stands a sculpture of a horned buffalo goring a bear, but many investors do not expect bullish prices until at least mid-February after the Lunar New Year, or Tet.

Kevin Snowball, director of PXP Vietnam Asset Management in Ho Chi Minh City, urged more clarity over timings and valuations of initial public offerings to reduce uncertainty in the market.

“Otherwise, we’ll still be going down when the rest of the world is re-testing previous highs,” Snowball said in an email.

MORE IPO DELAYS

The IPOs of four state-run banks had been scheduled to be completed by the end of last year, but only Vietcombank accomplished that, in late December.

Authorities this week announced further postponements of a long-awaited IPO of top state-run Agribank and the share market debut of Vietcombank [ID:nHAN38854]. IPOs and stock market trading debuts are separate affairs in Vietnam.

The pricing for Vietcombank, the third-largest lender, had also confused some investors and weighed on pre-listing, or grey market, trading in the stock.

In addition, an IPO for leading brewer Saigon Beer Alcohol and Beverage Corp (Sabeco), scheduled for Monday, is generating lacklustre demand, according to market participants. “The failure of Vietcombank to trade up following its auction and Sabeco’s undersubscription show that the gloss is off the equitisation process,” said Dickon Verey, head of trading at Mekong Securities in Ho Chi Minh City.

The Communist Party government’s plans to reform state-run companies to raise capital and to meet commitments in its first year in the World Trade Organisation is known as equitisation.

It was kick-started in 2006 with a doubling of listings on the exchange. The combined market capitalisation of two exchanges — the other is the over-the-counter Hanoi Securities Trading Center .HASTCI — is still only about $30 billion.

FOREIGN RESTRICTIONS

The Vietnam stock market more than tripled between the end of 2005 and the end of 2007, but no one expects the gains of the past two years to be repeated in 2008. In recent months, Vietnamese investors have been turning to gold and property, their only investment alternatives.

Options for foreigners are also limited, with investment in the 140-odd listed companies capped at 49 percent, and 30 percent for banks. The authorities have not signalled any imminent change.

Government attempts to control inflation by restricting the supply of the dong currency have also made it more difficult for foreigners to buy Vietnamese assets.

Along with tighter money supply and the IPO delays, planned taxes on dividends and capital gains on investments have also dented the market, said Le Nhi Nang, vice president of the Ho Chi Minh Stock Exchange.

“The number of foreign investors is rising but our monetary policy is not accommodating foreign investors.”

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