Intellasia News Services -- Let market forces settle teetering stock market, regulator urged

Let market forces settle teetering stock market, regulator urged
Source: 29-MAR-2008 Intellasia | Dau Tu Chung Khoan page 25
29 Mar, 2008 - 7:10:00 AM
With the stock market's scope accounting for 40% GDP and the foreign indirect capital (FII) flow of several billions of US dollars in 2007, Vietnamese stock market is confirmed too large that any regulator cannot play the key role in stabilising market. The recent move that State Capital Investment Corp (SCIC) announced to pump much money to buy shares to rescue the market is reputedly a catalyst to help investors stand firm, but in fact, Vietnam cannot create enough "strong fund" to stabilise the capital market.

Typically, although with the powerful finance strength and professional market makers, China or US could not stabilise their stock markets by purchasing shares in. Instead of this, the governments were forced to increase credit capital supply through banking system and direct lending for example the US JP Morgan took over Bear Stearns. Therefore, there will be not matched if using the state's money to counter directly with a fairly high capital inflow on the stock market.

However, through this, whenever a new investment psychology appears due to the stock market slump, market regulators will suffer heavy pressure and be propelled to offer band-aid measures including ones opposite to monetary tightening up policies and anti-inflation policies that the government previously was determined to reach targets. Thus, the "responsibility ball" is being kicked in utter disorder within the country's economy.

To curb inflation, the State Bank of Vietnam now should give high priorities to tighten up lending growth and monetary policies. But Le Hai Tra, permanent commissioner of Ho Chi Minh Stock Exchange's director board gave his point of view about loosening monetary tightening up policies that some out of 19 measures to curb inflation seemed to be softer in the government's monetary market control. Meanwhile, factually SBV could not both tighten up lending and rescue the stock market by pumping money into the field.

Once the market rescuing ball is moved to the SBV after the Ministry of Finance's SCIC has not yet had any positive signal to save market, the central bank's independence will be broken absolutely.

Recently, due to the sharp slide of the stock market, banks were ordered to stop securities offloading and mortgage. If the inflation reaches a new high, regulators will have to tightening up monetary policies once more time. By that time, those who will have to suffer consequences are commercial banks and stock investors. And the last victim is still the stock market. All is the predictable affect due to inconsistent policies and loss in SBV's independence in monetary policies as well.

Based on the point of view of the US economist Robert Merton, share likes an option relying on corporate money flow. Otherwise, stock is an option based on economic moat such as analysing enterprises' advantages or real economic operation, according to Warren Buffett. From these views, rescuing the stock market means to save enterprises' real economic operation and basic asset of shares. At present, investors cannot buy shares as seeing a series of difficulties including high inflation and interest rate, obstacles in trading US dollar despite businesses reported good performance and Price to Earnings (P/E) ratio now is only 12-15 times that is regarded as too cheap. However, investors still do not dare to take shares because of without optimistic signals on the real economy of firms.

The author of the article, Ho Quoc Tuan, Financial MA of Melbourne University, agreed with Spencer White, Thien Viet Securities Joint Stock Co's strategic advisor's opinion that assistance information can improve the market in short-term but investors appeared unfeeling before good news. Therefore, effectiveness of short-term measures difficultly is promoted, by that time investors will completely their faith on the stock market. Thus, regulators should reform real economy and the communication agencies should not create too heavy pressure on the regulators.

Given assessment on SBV's move to delay IPOs, Spencer White said that there is needed to be more determined in drawing up a clear equitisation schedule whereby derivative products of real economy will increase as expected.