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Low confidence, crude costs may drag stocks down: MSI

HA NOI  — The nation’s stock markets may decline this week as investor confidence remains low due to a possible rate hike by the US central bank and volatile oil prices, securities companies warned.

The stock markets may also retreat on bad news about macroeconomics released by the Government last week that revealed signs of economic slowdown, including a GDP growth of 5.5 per cent in the first quarter, lower than the growth of 6.1 per cent recorded last year, Maritime Securities Corporation (MSI) said.

Meanwhile, the benchmark VN Index on the HCM Stock Exchange on Friday gained 0.3 per cent to close last week’s trading at 572.08 points. The southern index fell 0.6 per cent from the previous week.

The benchmark VN Index on the HCM Stock Exchange on Friday gained 0.3 per cent to close last week's trading at 572.08 points. — VNS Photo Truong Vi

The benchmark VN Index on the HCM Stock Exchange on Friday gained 0.3 per cent to close last week’s trading at 572.08 points. — VNS Photo Truong Vi

The HNX Index on the Ha Noi Stock Exchange fell 0.6 per cent to finish the week at 79.73 points, extending a two-day decline of 1 per cent. The northern index dropped 1.1 per cent over the week.

Low investor confidence may drive markets down, especially after analysts pointed out that the US central bank may tighten its credit after statistics showed that the US economy recovered in the fourth quarter of last year, which was better than expected.

Better economic statistics announced by the US Government helped the US dollar rise against other currencies, including the Vietnamese dong, and it will become stronger if the US central bank raised its interest rates at the end of next month.

A stronger dollar on the international financial market may force Viet Nam’s central bank to weaken the dong in order to protect local products and attract foreign investment to the country.

Last week, Viet Nam’s central bank raised its reference mid-point rate for exchange trading by VND41 to VND21,879 per dollar.

Low investor confidence put pressure on financial firms, such as banks, insurance companies and securities corporations, as their businesses depends upon on the flow of dollar-based trading.

Banks that declined during the week included the Bank for Investment and Development of Viet Nam (BID), Vietinbank (CTG) and the Asia Commercial Bank (ACB), which fell 1.7 per cent, 2.3 per cent and 1.6 per cent, respectively.

Among other financial stocks, insurer Bao Viet Holdings (BVH) dropped 1.9 per cent from the previous week, Sai Gon Securities Incorporation (SSI) lost 1.8 per cent and HCM City Securities Corporation (HCM) slumped 4.3 per cent.

In addition, investor confidence may become worse as oil prices showed some volatility last week after the US Government reported increasing stockpiles amid the global glut, while other crude exporters chose not to join the coalition led by Russia and Saudi Arabia on production cuts to boost prices.

US benchmark crude West Texas Intermediate (WTI) dropped 0.8 per cent on Thursday to close trading at US$39.46 per barrel, extending a two-day slump of 4.8 per cent. WTI ended slightly higher from the previous week of $39.44 per barrel.

Among local energy stocks, PetroVietnam Gas Corporation (GAS) fell 2.2 per cent during the week, PetroVietnam Technical Service Corporation (PVS) dropped 2.9 per cent and PetroVietnam Mud Drilling Corporation (PVC) slipped 8.4 per cent.

Both local markets last week traded nearly 212 million shares each day, worth nearly VND3 trillion ($132.3 million), a decrease of 7.8 per cent in trading volume and 23 per cent in trading value from the previous week.

Markets

As trade spat cools, Chinese firms reconsider Vietnam move

With China and the U.S. suspending imposition of new trade tariffs, Chinese companies are rethinking their move to Vietnam.

The cost of building a new factory and hiring land at industrial parks in Vietnam has increased in the past few months and become an obstacle for many foreign investors, including those from China.

Given the higher costs, many Chinese export manufacturers, especially small and medium-sized ones, have taken advantage of the recent trade cease-fire between China and the U.S. to postpone plans to relocate their factories to Vietnam, according to South China Morning Post (SCMP).

Prices to rent industrial land in Vietnam have increased in recent time.

Prices to rent industrial land in Vietnam have increased in recent time.

U.S. President Donald Trump and Chinese President Xi Jinping have recently agreed to a ceasefire in a trade war that has seen the flow of hundreds of billions of dollars worth of goods between the world’s two largest economies disrupted by tariffs.

The two leaders agreed to hold off on imposing more tariffs for 90 days starting December 1 while they negotiate a deal to end the dispute following months of escalating tensions, according to Reuters.

But experts repeatedly expressed doubt that any concrete steps to totally ease tensions between the two economic giants can be achieved in so short a time.

“This is not a truce, this is not an armistice,” Steve Okun, senior advisor at McLarty Associates, told CNBC. He noted the additional tariffs that the U.S. and China have imposed on each other’s products are still in place, so the 90-day withholding of further levies doesn’t signal the end of the trade fight.

Even so, many export manufacturers, especially small and medium-sized firms (SMEs) in China, have jumped at the chance to postpone.

Xie Jun, a Chinese furniture exporter, said the cost of building a new factory in Vietnam had soared in the past few months and become unaffordable to many.

A sofa foam and sponge factory owner in China’s eastern province of Zhejiang moved to set up a factory in Vietnam’s southern Dong Nai Province early this year, he said.

The preparatory steps cost him nearly 10 million yuan ($1.4 million), including paying for and converting the industrial plants, transferring automated production lines from Zhejiang, as well as paying allowances to send skilled Chinese workers there.

The expense was even higher than building a new factory of the same size in Zhejiang, Xie said.

“So the [trade war] truce is really a relief for us. And we hope the government can really end [the trade war] next year,” Xie told the SCMP.

At an industrial park in Dong Nai, the price to rent industrial land on a long-term lease of up to 50 years reached $90 per square meter as of last month, up from $60 to $70 last year.

The prices also increase in other localities.

The average rent of industrial land in northern Vietnam hit $82 per square meter per lease term in Q3, an increase of nearly 9 percent compared to Q1, according to a report of real estate service firm Jones Lang LaSalle (JLL) on Vietnam’s property market in the Q3.

Hanoi’s average rents increased significantly to $137 per square meter per lease term, the highest in the north, driven by limited supply.

JLL said the country’s industrial properties will remain desirable due to strong foreign direct investment coming mostly from Japan, South Korea and Taiwan.

Gao Jian, co-founder of Vnocean Business Consulting Service company, which helps more than 50 industrial parks in Vietnam to recruit Chinese manufacturers, said there were various costs associated with setting up a plant.

“If we talk about founding a small electronics factory of about 300 workers in popular industrial parks near Ho Chi Minh City, it would cost about $1 million,” Gao said.

Thus, for those firms that remain in China, the tariff truce has allowed them to cling to the possibility that there might be no need to relocate, at least in the short run.

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Banking

Vietnamese currency falls to new low, could go lower

The official exchange rate between Vietnamese dong and U.S. dollar reached its highest this year Wednesday, and experts said the dong could depreciate further.

The State Bank of Vietnam set a central exchange rate of VND22,757 on Wednesday, the sixth time the rate has gone up in the last two weeks.

An employee counts U.S. dollar and Vietnamese dong at a bank in Ho Chi Minh City, Vietnam. Photo by VnExpress/Anh Tu

An employee counts U.S. dollar and Vietnamese dong at a bank in Ho Chi Minh City, Vietnam. Photo by VnExpress/Anh Tu

The dong has fallen by VND352, or 1.57 percent, against the greenback since the beginning of the year.

The dollar’s value increased at commercial banks. At 3p.m. Wednesday, Vietcombank sold the dollar for VND23,350, VND15 higher than Tuesday.

Vietinbank also sold its dollar for VND23,350, VND17 higher than Tuesday, while BIDV sold it at VND23,355, VND25 higher.

The dollar also inched up on the free market. At 11.30 a.m. Wednesday, it was selling for VND23,360-23,410, VND10-20 higher than on Tuesday.

Economist Nguyen Tri Hieu said that the reason for the hike was high demand for dollars toward the end of the year as businesses often import large amounts of materials needed for manufacturing.

The ongoing U.S.-China trade war continues to exert exchange rate pressures, despite the U.S. announcing a 90-day halt on additional tariffs on Chinese goods starting next year, as there is no certainty that tensions will decline, he said.

“There is a high possibility that the dong’s value will continue to fall this year,” Hieu told VnExpress International.

Hieu said that the government should also devaluate the dong against the Chinese yuan so that the trade deficit between Vietnam and China can be reduced.

Vietnam relies heavily on China for materials and equipment for its labor-intensive manufacturing sector.

As the yuan’s value has fallen by 9 percent to the dollar since the beginning of this year, some experts have said that the dong should be devaluated even more to avoid impacts a cheaper yuan. Cheap made-in-China goods could be imported in large quantities to Vietnam and compete with domestic products, they said.

But economist Tran Dinh Thien said that the dong should be kept at a balanced rate between the U.S. dollar and the Chinese yuan. A 2-3 percent band a year is acceptable, he added.

A stronger dollar will benefit exporters, but will also create stronger pressure on inflation and interest rates which will increase business costs in a country with high imports and public debt, Thien said at a recent conference.

He added that the fluctuation of the dong should be controlled to help local companies conduct their business with greater certainty.

The government doesn’t want businesses to suffer shocks, he said.

Prime Minister Nguyen Xuan Phuc had said in August that the devaluation of the dong needs to be kept within a 2-percent band this year compared with the end of last year.

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Markets

Foreign investors want Vietnam to adopt best stock market practices

Foreign investors are calling for scrapping the stipulation that investors must have funds and securities beforehand to trade.

Dominic Scriven, head of the Vietnam Business Forum’s (VBF) capital market working group, made the proposal at the VBF event in Hanoi Tuesday in which Prime Minister Nguyen Xuan Phuc participated.

This is excessive regulation, Scriven said, especially since it applies to both investors and brokerages.

The regulation is out of touch with international and regional best practices, which apply this only to brokerage firms and not investors, he noted.

Scriven claims the rule affects market liquidity, diminishes the role and dynamics of brokerage firms and causes investors, especially foreign, to suffer sizable costs for currency exchange.

The working group proposed amendments to the Securities Law to remove this requirement while ensuring market safety.

In most markets around the world, “short” selling and buying without putting up money upfront are allowed, meaning investors can buy stocks without having to have money in their account or sell without possessing a stock. They are subsequently allowed to square off the transaction or pay cash as the case may be.

Dominic Scriven is executive chairman of Dragon Capital, a Vietnam-focused financial services group.

Dominic Scriven is executive chairman of Dragon Capital, a Vietnam-focused financial services group. Photo acquired by VnExpress

Scriven also proposed allowing non-voting depository receipts (NVDRs), saying this would allow foreign investors to invest in public companies and listed firms even after the foreign ownership cap is reached.

“NVDRs may help resolve two issues. Firstly, the government can still keep a check on foreign equity in line with existing laws and international treaties. Secondly, the legal status of a company does not change when the foreign equity ratio passes 51 per cent.”

Pham Hong Son, vice chairman of the State Securities Commission (SSC), said the SSC is seeking market stakeholders’ comments on amendments to the Securities Law, and many proposals are under consideration.

He said the government plans to introduce stringent requirements to improve the status of Vietnam from a frontier to an emerging market.

“In fact, certain key criteria for the upgrade such as size, market transparency and information disclosure are basically met.”

According to the working group, Vietnam has three securities markets with a total capitalization of some $180 billion. These are the Ho Chi Minh Stock Exchange, the Hanoi Stock Exchange and the unlisted public company market UpCom. The country also has a bond market with a capitalization of around $50 billion.

The combined $230 billion is quite large and exceeds the ratio of 80 percent of GDP set by the government last year, the working group said in a report.

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