Double digit inflation could dampen stock market sentiment

01-Dec-2007 Intellasia | Thoi Bao Kinh Te Vietnam | 5:15 AM Print This Post

The forecast that the inflation could reach two digits this year will only indirectly affect the stock market while investors are paying more attention to Vietcombank’s expected initial public offering, said specialists.

On November 27, the domestic market administration group of the industry and trade ministry predicted that the Consumer Price Index (CPI) in December could rise by over 1.5% against the previous month and nearly 11% in comparison with last December.

Deputy manager of VPBank Securities Co’s Brokerage Office, Ngo Van Minh analysed, a sharp increase in inflation will make material prices for enterprises’ production go up. Meanwhile, these enterprises cannot hike prices of finished products because most of them signed medium and long-term contracts with partners. Therefore, these businesses’ profit in this quarter will decline strongly. Usually, business results of the last quarter will influence to the whole year’s figures. If the profit in the last three months decreases, investors will surely not set high expectation on that enterprise’s development. This will cause impacts on share prices, he added.

A high inflation showed that amount of the money in circulation is very large and the central bank has to withdraw money from circulation to control inflation. In order to do this, the State Treasury will sell G-bonds to large sized state banks. Therefore, a remarkable money amount that can be poured into the stock market through various channels will reduce, according to Hoang Xuan Quyen, manager of Tan Viet Securities Co’s Investment and Analysis Division.

In addition, the growth rate of inflation is higher than that of deposit rates, which made a reduction in real interest rates. To avoid the risk that residents will be hesitant to send money at banks, lenders had to raise deposit rates, meaning that they will increase lending rates to balance demand and supply of the dong. Due to this, stock players’ investment decisions also will be affected, Quyen added.

However, specialists assessed, the stock market still has support factors by the year end such as an increase in overseas remittance flow into Vietnam and economic growth. The VN Index by the year end could be 1,100-1,200 points, he forecasted.

At present, investors are eager to wait for all information on Vietcombank’s IPO. According to the government’s order, the state largest bank is forced to make IPO just in December however the particular schedule on the expected share offering to date has not yet been announced.

The most important question now is raised when Vietcombank launches IPO, not how much CPI will be, an investor said.

If the information on Vietcombank’s IPO is not much good for investors, other information such as inflation, interest rate, oil prices, gold price or real estate prices will become interests of investors.

Regarding worries that corporate profits could decline due to high inflation, an investor at Habubank Securities Co’s trading floor said, all enterprises usually calculated an increase in prices as drawing up business plans. Therefore, to deal with petrol price increase, these enterprises will adjust prices of their finished products so as to be suitable to the market. Moreover, many businesses signed contracts to buy materials for production just in the year early, so they could increase selling prices while material imports remains at initial prices. In such a case, their profit will increase.

 


Category: Finance

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