[Vnbiz] Vietnam Stocks Turn Into World's Worst on Inflation (Update2)

[Tai Phan]

Vietnam Stocks Turn Into World's Worst on Inflation (Update2)

By Chen Shiyin and Nguyen Dieu Tu Uyen
 [image: Enlarge
Image/Details]<http://www.bloomberg.com/apps/news?pid=photos&sid=avdj2zIE5Quk>

May 30 (Bloomberg) -- The worst may not be over for Vietnam's stock
market<http://www.bloomberg.com/apps/quote?ticker=VNINDEX%3AIND>,
the world's biggest decliner, as shares resumed declines after the exchange
returned to business following a computer breakdown that halted trading for
three days.

The benchmark VN
Index<http://www.bloomberg.com/apps/quote?ticker=VNINDEX%3AIND>fell
1.5 percent to 414.10, extending 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 17-day tumble, the longest streak since October
2003, according to a statement yesterday from the bourse. The gauge tripled
in value from the end of 2005 through 2007. The VN Index today closed at its
lowest since Aug. 2, 2006.

``We'll see a continuation of the selling,'' said John
Shrimpton<http://search.bloomberg.com/search?q=John%0AShrimpton&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1>,
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.,<http://www.bloomberg.com/apps/quote?ticker=REE%3AVN>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 75 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<http://search.bloomberg.com/search?q=Nguyen+Van+Hai&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1>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<http://search.bloomberg.com/search?q=Mark+Mobius&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1>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<http://www.bloomberg.com/apps/quote?ticker=MXEF%3AIND>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<http://www.bloomberg.com/apps/quote?ticker=VNITVOL%3AIND>,
plunging from the 2007 daily average of 965,000.

The International Monetary Fund said last November lending to state-owned
companies is exacerbating Vietnam's inflation, which is already more
``entrenched'' than in any other Asian country.

Consumer prices jumped 25.2
percent<http://www.bloomberg.com/apps/quote?ticker=VNCPIYOY%3AIND>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.

``The longer it takes the government to raise interest rates, rein in
inflation and slow down demand, the more likely that would lead to a hard
landing,'' James
McCormack<http://search.bloomberg.com/search?q=James+McCormack&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1>,
head of Asia-Pacific sovereign ratings at Fitch in Hong Kong said in an
interview with Bloomberg Television today. Interest rates ``have to be
higher than inflation.''

Property developers have led this year's slump amid concern higher borrowing
costs will curb home purchases. Idico Urban & House Development Joint-Stock
Co. <http://www.bloomberg.com/apps/quote?ticker=UIC%3AVN>, a Dong Nai
province-based builder, retreated 81 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<http://search.bloomberg.com/search?q=Beat+Lenherr&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1>,
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<http://search.bloomberg.com/search?q=Luong+Minh&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1>,
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<http://search.bloomberg.com/search?q=Chen+Shiyin&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1>in
Singapore at
schen37 at bloomberg.net; Nguyen Dieu Tu
Uyen<http://search.bloomberg.com/search?q=Nguyen+Dieu+Tu+Uyen&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1>in
Hanoi at
uyen1 at bloomberg.net.
*Last Updated: May 30, 2008 01:24 EDT*
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