Vietnam Stocks Turn Into World’s Worst Market on Ratings, Dong

By Chen Shiyin and Nguyen Dieu Tu Uyen

May 30 (Bloomberg) — The worst may not be over for Vietnam’s stock market, the world’s biggest decliner, as the stock exchange returns to business after a computer breakdown halted trading for three days.

The benchmark VN Index may extend this year’s 55 percent retreat after a government report showed prices jumped the most since at least 1992, Morgan Stanley said Vietnam is heading for a “currency crisis” and Fitch Ratings cut its outlook on the nation’s debt rating.

The Ho Chi Minh City Stock Exchange fixed the computer error that interrupted the VN Index’s 16-day tumble, the longest streak since October 2003, according to a statement yesterday from the bourse. The gauge had tripled in value from the end of 2005 through 2007.

“We’ll see a continuation of the selling,” said John Shrimpton, a director of Dragon Capital Group, a Ho Chi Minh- based fund manager with assets of $2 billion. “Inflation is one aspect causing the drop. The market was clearly overvalued.”

The VN Index, started in 2000, surged almost fivefold in the two years through its March 12, 2007, peak as the economy grew at the fastest pace in a decade and a government equity sale program helped lure foreign and domestic investors. Refrigeration Electrical Engineering Joint-Stock Co., the Ho Chi Minh City- based maker of air conditioners and electrical appliances, rose 523 percent from the end of 2005 through 2007. The company’s shares have slumped 74 percent in 2008.

Lost Savings

Local investors who own about 75 percent of listed shares in Vietnam, a Communist Party-led nation of more than 85 million people, are reeling from the plunge. Nguyen Van Hai lost almost 700 million dong ($43,000), and his parents sold their house to help repay loans he’d used to invest.

“I entered the stock market with hopes that I could earn enough to own a house and get married,” the 29-year-old Hanoi- based taxi driver said. “Those wishes have now vanished.”

Even after the tumble, Vietnamese stocks aren’t cheap enough to prompt Templeton Asset Management Ltd.’s Mark Mobius to buy.

The 151 companies in the VN Index trade below 10 times estimated earnings, down from as high as 30 times, according to data from Dragon Capital. Stocks in the MSCI Emerging Markets Index trade for 13.5 times profit, data compiled by Bloomberg show.

`Little Way to Go’

“It’s got a little way to go down still,” said Mobius, who oversees $47 billion in emerging-market equities at Templeton in Singapore. “If you’re going to go in there, you better think long-term, otherwise you can get stuck with a very illiquid security.”

About 52,000 stocks and bonds changed hands on average each day this month on the Ho Chi Minh exchange, plunging from the 2007 daily average of 965,000.

The International Monetary Fund said last November that inflation in Vietnam was more “entrenched” that in any other Asian country.

Consumer prices jumped 25.2 percent in May from a year earlier, the most since at least 1992 and the fastest pace in Asia, according to May 27 figures from the General Statistics Office in Hanoi. Food prices surged 67.8 percent.

Vietnam’s central bank raised its key interest rate to 12 percent on May 17, the highest since it was introduced in 1998, from 8.75 percent. The country is heading for a “currency crisis” because the bank has kept the dong too strong as inflation soars and the trade deficit widens, Morgan Stanley said in a May 28 report.

Rating Outlook

Fitch Ratings cut its outlook for Vietnam’s BB- rating to negative from stable yesterday, citing risks to the banking system because the government was too slow to respond to higher inflation.

Property developers slumped amid concern higher borrowing costs will curb home purchases. Idico Urban & House Development Joint-Stock Co., a Dong Nai province-based builder, retreated 80 percent, the most this year for any company listed on the Ho Chi Minh exchange.

Some foreign investors say the market is attractive enough to add to their holdings.

“We’re increasing our investments in Vietnam even more,” said Beat Lenherr, who oversees more than $20 billion of assets as Singapore-based chief global strategist at LGT Capital Management. “This is an embryonic market that had a strong birth. Now the baby is struggling a little, but we think it’ll get its strength back.”

Luong Minh, a 53-year-old state employee, who earns 5 million dong a month in Ho Chi Minh City, is less sanguine after losing 100 million dong in the stock market.

“I don’t want to sell the shares I have, but the longer I keep them, the bigger the loss,” Minh said. “It is hard to sell now anyway as the market is almost frozen. We are desperate.”

To contact the reporters on this story: Chen Shiyin in Singapore at; Nguyen Dieu Tu Uyen in Hanoi at

Fitch revises Vietnam outlook to negative

HANOI (AFP) — Credit risk evaluator Fitch Ratings on Thursday lowered the outlook on Vietnam’s BB-minus sovereign rating from stable to negative, calling double-digit inflation “a serious concern for Vietnam”.

The state-run General Statistics Office this week estimated that consumer prices shot up by 25 percent in May year-on-year in the country of 86 million, driven mainly by surging food, energy and construction materials prices.

The galloping inflation has stoked public anger and labour unrest and led the communist government in Hanoi to lower this year’s gross domestic product (GDP) growth target to 7.0 percent from last year’s 8.5 percent.

The Fitch report warned that “inflation is a serious concern for Vietnam” and said government responses, including price controls, higher interest rates, bond issues and other steps to soak up liquidity, haven’t yet worked.

“In Fitch’s view, the policy response has been both too slow — as official pronouncements have not been followed up by immediate action — and too small, as real policy interest rates remain deeply negative even following their recent increase,” the agency’s report said.

The agency affirmed Vietnam’s BB minus long-term foreign currency issuer default rating (IDR) and its BB long-term local currency IDR, but revised the outlook to negative from stable.

Fitch also affirmed its short-term foreign currency IDR at B and the country ceiling at BB minus, the agency statement said.

“In the medium term, crucial factors affecting the sovereign’s rating prospects include further fiscal and state enterprise reforms, ongoing efforts to keep inflation under control, policies to further attract FDI (foreign direct investment) and programmes to improve infrastructure,” said the agency.

Hints of a Crisis in Vietnam

There’s trouble brewing in Vietnam, judging by what’s happening to its currency.

The Vietnamese dong is effectively pegged to the dollar and only fluctuates within a very narrow band. However, investors can make bets on its impending direction using forwards, or contracts which allow buyers to purchase a currency at a set price at some future date.

On Tuesday the dollar-dong exchange rate implied by those contracts spiked by 11%, according to a note from Morgan Stanley — in other words, twelve months from now, investors expect the U.S. dollar to buy many more dong than it does today (over a third more, in fact). In effect, the contracts are pricing in a breaking of the peg and a drastic weakening of the dong.

That’s a major reversal from just months ago, when Vietnamese were racing to stockpile the local currency on the belief that it would strengthen. Since then, however, there has been a spate of bad news on inflation and trade.

On Monday, the government said that inflation jumped to 25.2% in May over a year earlier, raising fears that prices could spiral out of control. The trade deficit is also projected to expand to $14.4 billion in the first five months of the year as imports surge. Meanwhile, Vietnam’s stock market has plunged by more than 50% this year, making it the worst performer in Asia.

All this “was too much for the market to ignore, leading to a complete reassessment of macro balance and inflation risks at hand,” wrote Stewart Newnham, a currency strategist at Morgan Stanley. “When prices shift this much in emerging markets, it is rare that they recover,” he noted.

The bottom line: Mr. Newnham believes a currency crisis could be looming in which Vietnam is forced to defend the dong by selling dollars from its currency reserves.

Tiger poaching ‘on the rise’ in Vietnam

Officials have warned that poaching is still threatening tigers in Vietnam.

The Vietnam News reported that the latest government figures suggest that only around 100 tigers survive in the wild in the country, down from over 300 just a decade ago.

This is despite the fact that tigers have been listed in Vietnam’s Red Book of Endangered Species for some years.

According to the report, this has done little to curb the illegal killings of the animals. It pointed to the fact that “tiger skins, teeth and bones can be readily purchased in major cities”.

What’s more, it appears smugglers are getting bolder. Last year, police seized two live tigers in the city of Ha Noi. One official explained to the paper: “This was the first time that live tigers were smuggled through an urban area. It indicates that the perpetrators knew what they were doing and had done it before.”

Finally, the report warned that there has been an alarming rise in illegal tiger breeding across Vietnam.

Some reports estimate that fewer than 2,500 tigers survive in the wild across the whole globe.

Vietnam’s inflation hits 25.2 percent, highest in a decade, as food, construction costs soar

HANOI, Vietnam: Surging food and construction costs drove Vietnam’s inflation rate to 25.2 percent in May, the highest in more than a decade, the government said Tuesday.

Despite authorities’ efforts to control inflation, including interest rate hikes, consumer prices were 4 percentage points higher than last month, according to the Government Statistics Office.

Vietnam’s inflation rate is among the highest in Asia, and higher food prices in particular are hurting the country’s poor.

Overall food costs were up 42.4 percent from a year ago, driven by a 67.8 percent jump in the price of grain, including rice, the staple food. Housing and construction materials rose 22.9 percent over last year.

Analysts say Vietnam’s surging inflation is being driven by both domestic and global forces, including soaring fuel and food costs. Rapid economic growth and looser lending policies in recent years, which has spurred investment, also have contributed.

The communist government has made fighting inflation its top priority. The central bank raised by interest rates 3 percentage points to restrain borrowing and encourage saving.

In the past few months, the government has also postponed public investment projects and ordered state agencies to cut spending by at least 10 percent.

The impact of these policy changes should be felt in the second-half of the year, said Jonathan Pincus, chief economist of the United Nations Development Program in Hanoi.

“The economy is still healthy, with exports and foreign direct investment soaring,” he said.

Vietnam’s exports were up 27 percent in May from a year ago, and foreign investment pledges reached US$15.3 billion in the first five months of this year, more than double the same period last year.

Still, authorities foresee slower growth ahead. Earlier this month, Vietnam slashed its annual growth target to 7 percent from 8.5 percent.

Shooting the messenger | The Economist

May 22nd 2008 | BANGKOK
From The Economist print edition

The press fights back as two graft-busting reporters are arrested

THE leaders of Vietnam’s Communist Party say they are conducting a “no holds barred” crackdown on corruption in public life. They implore the country’s newspapers to sniff out and expose the fiddles of officials. In February the party chief, Nong Duc Manh, praised the press for unmasking graft and thereby fulfilling “the people’s desires”. The most notable case was a scandal at the transport ministry in 2006 in which newspapers revealed how officials had gambled around $750,000 of public money on the outcomes of football matches. In the clean-up that followed, the head of a road-building department at the ministry was jailed, along with seven others.

But recent events have cast doubt on the sincerity of the leadership’s claim to be fighting corruption at all levels. The main charges against Nguyen Viet Tien, a former deputy transport minister, who was the highest-level official to be arrested over the scandal, have been dropped. More worrying still, the two leading investigative reporters who exposed the scandal have been arrested, along with two former policemen who were among their sources, on vague charges of “abuse of power” and publishing false information.

Vietnam’s news media, despite an appearance of diversity, remain tightly controlled: their editors have to be approved by the party and are called in for restrictive “guidance” on what they can report. In recent years they have nonetheless been allowed to publish an increasing amount of criticism of government policy—though it always falls short of questioning the party’s “right” to rule. The arrested reporters work for two newspapers, Thanh Nien and Tuoi Tre, that were especially fearless in exposing official corruption.

In an unprecedented show of defiance, both newspapers are standing by their reporters. Thanh Nien has run an editorial demanding: “Free the honest journalists.” It says it has been “swamped” with messages of support from the public and some National Assembly members. It challenges the authorities to explain why, if the offending articles had been so inaccurate, none of the police, prosecutors and the ministry of public security had got around to pointing out the errors at any time in the past two years.

It remains unclear why the authorities have suddenly turned against the graft-busters. Were they getting too close to an even bigger scandal? Are party bosses trying to send a message that those above a certain level in the hierarchy are untouchable? Or could it be a visible symptom of strife between reformers and hardliners in the party hierarchy? “People feel that the journalists are maybe the pawns in some larger game but it’s not clear what that might be yet,” says Catherine McKinley, a media analyst in Hanoi.

The Communist Party, like its Chinese counterpart, seems to have won the people’s grudging acceptance for having delivered impressively rapid economic development since ditching collectivism over 20 years ago. Now, however, it is battling against roaring inflation and an incipient balance-of-payments crisis. It may need to take unpopular but vital measures; and economic growth may have to be sacrificed temporarily to restore stability. So the party’s bosses will need the public’s forbearance. One good way to forfeit it is to victimise those who have spearheaded the fight against corruption.

Vietnam | Shooting the messenger |

Vietnam to permit (some) foreigners to own property

25 May 2008

Martha Ann Overland writes from Hanoi:

Vietnam’s National Assembly has voted to allow foreigners to buy property but when it goes into effect next year there will be limits on who is affected and what they can buy.

The resolution passed May 22 limits ownership to foreigners who meet specific residence and professional criteria, according to the official Vietnam News Agency. And eligible buyers will be allowed to purchase only apartments, not houses or land.

Under the new rules, individuals who qualify include expatriates investing in the country, foreigners married to Vietnamese and those with university degrees working in specialized fields. A category was created for those who have been decorated by the president of Vietnam and named an honorary citizen.

When the law goes into effect, foreigners will be restricted to apartments in approved housing developments and after 50 years, apartments must be sold or given away. The properties must be occupied by the owners and cannot be used as investments.

While foreigners might find the restrictions less than attractive, the government hopes that it will signal that Vietnam is open for business. “This law, once it takes effect on Jan. 1, 2009, will further promote the development of the real estate market for foreigners in Vietnam,” said Ngo Duc Manh, vice chairman of the National Assembly’s External Committee. “It is a positive signal for foreigners working and living in Vietnam.”

According to the Ministry of Construction, 80,000 foreigners now live and work in Vietnam; about 20,000 of them would be eligible to buy under the new rules. Currently most expatriates prefer to live in villas and detached houses.

Despite the limitations, the change was welcomed by real estate developers who hope additional buyers will help buoy sales. Although apartment prices in urban areas had been rising, the market has softened in the past few months, with prices dropping 20 to 40 percent from their all-time highs.

International Herald Tribune – Vietnam to permit some foreigners to own property