VZCZCXRO3331
RR RUEHCHI RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHPB
DE RUEHHI #0388/01 0950938
ZNR UUUUU ZZH
R 040938Z APR 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC 7543
INFO RUEHHM/AMCONSUL HO CHI MINH 4535
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
UNCLAS SECTION 01 OF 02 HANOI 000388
SIPDIS
SENSITIVE
SIPDIS
SINGAPORE FOR TREASURY
TREASURY FOR SCHUN
USTR FOR BISBEE
E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV VM
SUBJECT: VIETNAM'S MARKET HAS FALLEN AND IT CAN'T GET UP
REF: Hanoi 377
HANOI 00000388 001.2 OF 002
1. (U) Summary: Vietnam's stock market has dropped
dramatically in the first quarter of 2008, prompting the Government
of Vietnam to take a number of steps to try to stabQe the market.
A plan to have the State Capital Investment Corporation (SCIC) buy
shares did not prevent further declines. Narrower trading bands on
both the Hanoi and Ho Chi Minh City exchanges seem to have brought
some short-term stability. Local analysts and investors feel that
the market may be making an appropriate adjustment towards more
realistic value levels. End Summary.
VIETNAM'S STOCK MARKET SLUMPS
------------------------------
2. (U) The Ho Chi Minh City Stock Exchange Index (Vietnam's official
stock index) fell by 23 percent in dollar terms in the first two
months of 2008, falling to 608 on March 4 and making it the worst
performing stock market in Asia. Mr. Tran Van Dung, Director of the
Hanoi Securities Trading Center (HASTC) commented that "individual
investors' anxiety had spread to some securities companies and fund
management firms".
3. (U) The Ministry of Finance (MOF) publicly cited increased stock
supply (from new listings and additional stock issues), the global
economic slow down, tightened monetary policy and lack of domestic
investor confidence as reasons for the plunge. Private investors,
however, blame the rocketing inflation rate, rising prices for gold
and real estate, and weak performance in global and regional bourses
as major factors that prompted them to turn their back on the
securities market. Local bankers and analysts are also quick to
point out that the securities lending cap of three percent for
commercial banks has resulted in more capital going towards
Vietnam's overheating property market (reftel).
THE GOVERNMENT'S RESPONSE
-------------------------
4. (U) The Securities Business Association (SBA) called an urgent
meeting on March 4 with the State Securities Commission (SSC) to
propose measures to resuscitate the market, including a proposal for
a temporary trading halt. On March 5, the MOF, which oversees the
SSC, postponed the initial public offerings (IPO's) of some large
state owned enterprises such as SABECO and Agribank. MOF also
proposed a plan, endorsed by the Prime Minister, to require the
State Capital Investment Corporation (SCIC) to buy shares of listed
firms to stabilize the market. Mr. Dung, HASTC's Director, believed
that it was not yet necessary to suspend trading because the market
levels did not warrant such action. According to him, the most
urgent action needed was "to stabilize investors' psychology and
confidence".
SCIC TAKES ACTION, AS REQUIRED
------------------------------
6. (SBU) In a meeting with EconOff, Mr. Le Song Lai, Executive
Director of SCIC, said that they were "instructed by the Government
of Vietnam" to do something to resuscitate the market, and had
already made its first purchase of shares. "It was not our
intention. It's an undesirable role," he explained. According to
Lai, SCIC is aware of foreign investors' concern about the
government's intervention in the market, but he underscored that
"this was only a temporary action, not a long term plan."
7. (SBU) Pursuant to the plan, SCIC is allowed to determine the
volume and type of stocks it will buy, when it will purchase, and
when it will sell. Lai wouldQ disclose the amount that SCIC is
authorized to spend, but other sources have placed it at around 300
million dollars (perhaps coincidentally, the approximate amount of
SCIC's short-term capital). SCIC will make its purchase decisions
based strictly on liquidity and profitability of companies, and will
not engage in "daily trading" or selling stocks for short term
gains. Mr. Lai said that SCIC will carefully consider the timing
and number of share sales to avoid destabilizing the market.
8. (SBU) SCIC's Lai believed that SCIC would exit as soon as the
market stabilized. He admitted that at the moment, it was too early
to determine an exit date as "the market is still very volatile."
He also felt that the GVN should consider setting up a fund to help
stabilize the market in difficult times, rather than depending on
SCIC's intervention. Despite SCIC's role, the index closed out ten
consecutive days of losses at 497 points on March 25, the lowest
level in the past year.
SSC ADJUSTS THE TRADING BAND, MARKETS RISE
HANOI 00000388 002.2 OF 002
------------------------------------------
9. (U) The SSC also decided to narrow the daily share trading band
from five to one percent (on the Ho Chi Minh Stock Exchange) and
from ten to two percent (on the HASTC) effective March 27. The share
trading band is the limit on how far share prices can move up or
down from its reference price. The reference price is the average
price of the last five previous trading sessions. SSC narrowed the
band to calm investors, prevent dramatic drops and discourage
liquidation of shares due to margin calls.
10. (U) Following this action, the market has shown slight gains
for the five consecutive days since the new bands were introduced,
closing at 529 points on April 3. Trading volume, however, has
slowed to a trickle, with only 1.1 million shares worth VND 72
billion (US$4.5 million) changing hands on April 3. According to
Bui Van Quang, deputy director of SME Securities, investors are
holding shares because they do not see much profit in trading within
the narrow band. As a result, the SSC just widened the band from
one to two percent (on the Ho Chi Minh Stock Exchange) and from two
to three percent (on the HASTC), effective April 7.
THE PRIME MINISTER SPEAKS
-------------------------
11. (U) In addition to the above measures, the Prime Minister
recently tasked a number of agencies to assist in GVN efforts to
resuscitate the stock market. He asked SCIC to focus on buying
shares that weigh on the index to help stabilize the market. He
assigned the State Bank of Vietnam (SBV) to instruct state owned
commercial banks and urged joint stocks banks to delay margin calls.
At the same time, the SBV is to increase buying foreign currency
from banks and financial institutions including foreign currency
from portfolio investments at reasonable exchange rates. The PM
will also allow listed firms to buy back their own shares to
increase chartered capital without any restrictions.
12. (SBU) In an example of classic Vietnamese spin control, the PM
assigned the Ministry of Public Security to investigate and deal
with false information and rumors about the market. He asked the
MOF, the SBV and the SSC to organize a press conference to announce
the first quarter socio-economic results. Finally, the PM told the
Ministry of Information and Communication to instruct media to
report accurately and objectively on GVN's direction and policy on
stock market development.
13. (SBU) Comment: Local investors are not well educated about
market basics, and many were buying and selling vigorously based
more on emotion and the desire to make a quick buck versus any real
understanding of value. Area fund managers and analysts have
commented that Vietnam's stock market is simply adjusting to a more
rational, regionally appropriate level after an earlier period of
unsustainable (and perhaps unjustified) growth. End comment.
MICHALAK