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